Merry Christmas to everyone who is reading this post! I am starting my year end note a little earlier this year because I have no idea how long it is going to take to finish this note. Especially when I intend to pick some ideas and give some view on the market direction, this means it will take a lot more thinking a whole lot of my time.
Looking back at this year, I have already posted 59 posts which is more than 1 per week, however I really doubt I will be able to post this many in the coming year because my work is just going to get more challenging and my time with my beloved stocks will dwindle to almost nothingness. Ok I admit it is a little dramatic, but the fact of the matter is, it is really very difficult to keep things going for the blog going forward. Lets hope for the best and really I do wish to see more of you silent readers to become followers for the blog because it would be a justification for me to continue writing this.
So Tuan Sing really moved 3 days after my post, now people are really going to think I am a contra trade stock picker. I really had no idea that Business Times was going to publish an article 2 days after I did. If I did, I would have mortgaged my house and bought into the stock! My goodness, I did not make a single dime on the stock because I was still trying to determine how I should rebalance my personal portfolio to include Tuan Sing but now it is just flown away from me....sigh.....Maybe in the future, I will only post after accumulating enough of the stock....but that would be unethical. The dilemmas in life....balancing between ethics and money.
This year has not been as fruitful as I hoped it would be. To be honest, it has been a turbulent year for my personal portfolio and I have been struggling to beat my benchmark of 10% real return on my money. Figured that if it is possible to deliver such returns, I should be retired by 45 years old. Do not misunderstand that I have tons of money to start with, but all I am targeting is to have as simple a life as possible and that does not take much money in the first place. So that is why I have set such low expectations.
Moving into this year's final post. Where should we start? How about risks? It is always important to look at the downside before looking at the upside. So lets start off with the risks that I see in the market.
Inflation
Yes yes, I know the central bankers like Trichet and Bernanke are all talking about how they feel inflation will remain tepid in Europe and US. They are probably right and it will stay low for another 12 to 18 months but there is a problem here...we DO NOT LIVE IN EUROPE AND THE US. We are going to face inflation of above 4% going into the next year and you know what? That is just the FAKE figures that our governments are going to report to us. Imagine what will the true rate of inflation be? Inflation will be key going into the next year as we have had a great year for emerging markets and wage pressures and material costs are going to be main drivers for the inflation problem in emerging markets. The competitive devaluation of currencies makes it a conducive environment for inflation to breed. It is not wise for investors to rest on their laurels next year on their reliance on fixed income.
I personally know that there are some very established investment strategists that are still recommending investors to buy into emerging market bonds but I believe they are underestimating the inflationary pressures these countries face in 2011 and that will really hurt their bond prices. Lets be honest here, which of you do not think inflation is something which we do not pay enough attention to. That is all due to the "money illusion" which governments create in our perceptions, but that is a theory which will be left for another post cos I do not intend to spend my whole Christmas weekend writing this post.
The theme will be based around the fight against inflation and balancing it against worries over the robustness of the economic recovery. If central banks continue to look at economic recovery as fragile, inflation will catch up on them without them realising it. Emerging markets have to realise that they will have to move their model away from export model to a consumption one. If is going to be difficult because if consumption picks up, inflation will too, if currencies are managed artificially lower to help exports, inflation moves up too. Thus it is really a "catch 22" situation for them. The biggest problem for most people are their inability to look beyond the short term and into the long term. Some times short term pain may really lead to long term gain. However governments are giving too short tenors for each election cycle and they tend to use stop gap measures to "stop start" their economy according according to election cycles and that distorts the economic growth path for most countries. China will be the only exception for this because their governments stay in place till they are too old. Hahaha. Just kidding.
So when evaluating investments, investors will have to take note of inflationary risks and make sure that the underlying investments they choose to take will have potential to return more than the inflation rate. I would target a return in excess of 8 percent to be safe.
Europe will continue to be a worry zone because we are very quickly running out of peripheral countries to distract us from the possibility of Spain or Italy to default on their debt. Remember, even if these countries do not default, the press will make it out to be. So I would just say, expect volatility in these markets. Will a sovereign default materialize? Maybe. Will it hurt us? In the short term yes, but in the longer term no. So expect Europe to continue to contribute to the volatility but take it as buying opportunities.
It is my belief that it is practically impossible for all parts of the world to do well altogether. If Europe suffers, we will benefit in one way or another. Do you know why food and energy prices have been low over the past 30 years? That is because there are large parts of the world suffering from starvation and lack of materials and power. Now that these parts are emerging from the darkness of poverty, some places have to lower their standard of living just to make up for this increase in demand. ZERO SUM GAME, understand? Harsh? I know, but face it, its the truth and it hurts because this is not UTOPIA.
The US will probably continue to do well because of the loose monetary policies in place and throw in QE2 and the extension of tax breaks (QE3), it all makes for a very conducive investment environment. Who will lead the S&P 500 forward to higher levels? Financials of course! They have not performed well this year and only picked up over the past 3 weeks because strategists out there are realising the fact that financials are the lagging sector throw the Pharmaceutical sector, we have the dogs of S&P 500 in 2010. What could screw things up for the US? I would say higher mortgage rates which we have been seeing for the past 5 weeks where treasuries have taken a beating leading to higher longer term yields and higher mortgage rates. The yield curve is steepening and that would mean that mortgages are going get higher. We could see a pop in mortgage take ups over the next few months as house owners may be afraid of higher rates in the future and rush to get their refinancing done, but after all that is done and dusted, what happens next? Could we see a double dip for housing? That is my fear for 2011. As I have said many times, Bernanke is probably the man made for this job. You want cheap money, he will give it to you. So he will think of some way to save the housing market. You can bank on that happening.
What do I like for 2011? I love real assets, be it properties and commodities. I am really bullish on them. Totally expecting the Singapore government to continue to introduce more property price cooling measures in 2011. In fact, it should come sooner than later so do expect to see it. But if you hold a long term view, I continue to like Singapore properties. I love commodities, especially soft commodities and energy. No gold? All my friends will know that I have been calling for gold since it was 600 bucks so I really do not want to keep calling for it. Is it a good hedge for inflation? I really think it is overrated. The best hedge for inflation will be where the inflation is coming from and they will be in housing, food and energy. For precious metals, I would promote platinum because it is the laggard behind silver and gold. This is totally unjustified because the demand and supply situation for platinum is still very bullish for the metal. Sell silver and move into platinum. I hope a close friend of mine whom I told to buy silver 5 years ago will listen to me again. You know who you are. One commodity I really like for next year will be Uranium. Very bullish on it because North Korea has placed an order to buy tons of it for their nuclear enrichment programme. Hahaha. Just kidding. I believe nuclear energy will see more take up over the next few years and uranium will be red hot.
Stocks Stock and more ...... (STOCKS)
It is no secret that there is nothing I love more than stocks as an investment. So I am going to end off with a few stock picks that I feel will do well for everyone's portfolio....
Nah...I guess I will leave it for my next post because I really am getting a little tired of typing. So will it be next week or will it be next year when I put the list out? Keep guessing.
Have a great Christmas! Stay blessed!
Best,
SVI
Friday, December 24, 2010
Saturday, December 18, 2010
Tuan Sing, uncovering the undervalued prime property developer plus others. $0.25
This will probably the penultimate post from me for the year as next couple of weekends will be rather busy due to Christmas and New Year celebrations scheduled. It is my favorite time of the year because this is the time to look forward to the new beginning for another year and my investment track record starts on a clean slate once again. December is always a great month to reflect back on the year and strategize for the next year. This year has not been fantastic especially for equity investors because they had to go through two volatile periods in May and September wiping out most gains and only giving them back if the investor was able to withstand the temptation to cut losses.
Before I go into the topic for today, I would like to apologise for not posting last weekend because if I did, some of you would have made good money on the stock I was going to write about. For those who benefited from the call, you are welcome. But anyone of you who smses me asking for contra or trading ideas, I will be charging 20% performance fee should you make money. I do not appreciate being asked such questions because I really dislike giving advice on short term trades, I do not like to have the pressure of giving a stock pick that will perform over 5 days. So let me state this clearly once and for all, NO MORE CONTRA advice! It is ok if you want me to give you ideas on stocks to buy and hold, because that is what investing is all about!
The stock I was intending to write about was STX OSV which has already gone up significantly from the price I was intending to call for. This is probably the IPO I liked most out of all the recent IPOs. I do believe it will continue to do well over the long term so do keep this on your watch lists and look for an attractive entry price. Goldman released a good report placing a target price of $1.54 on it. It is not surprising for Goldman to write good things for this stock because they are after all they are the IPO manager. Expect more positive reports to be released and more investors will jump on the bandwagon because there will be more credibility from a more neutral party.
This week, I am going to be doing a write up on a stock which my mum and dad would know about but younger investors would not even bother about it. This is a favor I am doing for someone who asked me to look into this stock. After looking through it, I was definitely impressed by the value in this company that is why I have decided to share it with all of you. Remember, this is definitely not the kind of stock that will move over the next few weeks or even months but this is one that has tons of value and will eventually deliver.
Tuan Sing Holdings Limited was established in 1969 and listed on the Singapore Stock Exchange in 1973. Over the years, the Company has expanded into multi-core businesses and broadened its presence in the region. Headquartered in Singapore, Tuan Sing now has over 70 subsidiaries, associated and jointly-controlled companies with a total workforce of more than 4,200 employees operating in various countries in the region.
Tuan Sing is involved in industrial manufacturing (tyres, packaging etc), hotel operations, property development, retail and electronics manufacturing. Now you know how diversified this company is. Currently, the company seems focused on taking on more property development projects, through their acquisition of Serene House and the land plot in Seletar. Earnings over the past year has been driven by property development while revenue has improved due to industrial segment.
Property Development
The company has been involved with property development for the longest time in Singapore and they have plenty of experience with that in China too. All their previous developments have been in prime areas in Shanghai. Their historical selection of land plots for development have been impressive and I do expect them to continue this great track record of land selection going forward.
Industrial Manufacturing
The Tyre and Auto Products unit has exclusive distributorship/rights for tyres from renowned manufacturers, namely GT Radial and Bias Tyres from Indonesia; GT Radial, Primewell and Runway Tyres from GiTi Group in China.
As the exclusive distributor for these established brands of tyre for selected countries in ASEAN, the unit distributes a wide range of tyres including passenger car radial tyres, truck and bus bias and radial tyres, as well as off-the road and industrial tyres. To complement its tyre business, the unit also markets Millennium wheels from Indonesia, GT wheels of Seyen Heavy Industryies in China, GT Lube, GT Batt and Yokohama brand batteries in ASEAN and China.
Hypak, a 98%-owned subsidiary, manufactures unlaminated and laminated polypropylene woven bags for products such as fertiliser, sugar, chemical, flour and feed meal.
Hotel operations (Hyatt Melbourne and Hyatt Regency Perth)
Hyatt Melbourne is a pre-eminent five star hotel in Melbourne
Within walking distance to the city's premier theatre, sporting venues, parks and convention centres
Won many international awards including recognition as Best Business Hotel in Melbourne 2000 by Asiamoney and Euromoney
547 guest rooms including 49 suites
Regency Club with 56 guest rooms for VIP accommodation
Hyatt Regency Perth includes five star Hyatt Regency Hotel, 23,000 square metres of office, retail and professional office tenancies, and a basement carpark
367 guest rooms including 32 suites
Regency Club with 68 guest rooms for VIP accommodation
Retail
The Group’s retail business comprises its 60% interest in the Pan-West group of companies, held through the Group’s wholly-owned subsidiary TS Planet Sports Pte Ltd.
Pan-West distributes and markets golf and golf-related lifestyle products in Singapore, Malaysia, and Indonesia. It also provides golf-related services such as custom fitting, professional coaching and after sales service. As a retailer, Pan-West operates 35 on-course and off-course outlets and concessionaires throughout the region.
Pan-West is the distributor of some of the top golfing brands in the world, amongst them, Callaway, Honma, Odyssey, Cleveland, Yamaha, Tour Edge, Cutter & Buck and Katana.
Electronics Manufacturing
Tuan Sing owns a 43.33% interest in an associated company, publicly listed Gul Technologies Singapore Ltd, a printed circuit board manufacturer with operations in Singapore and China.
GulTech is a manufacturer of double-sided, multi-layered and high-density printed circuit boards (PCBs). The company was listed on SESDAQ in March 1997 and was transferred to the main board of SGX in July 2000. GulTech has manufacturing plants in Suzhou and Wuxi, China.
Now you get the idea. When a company has this many businesses, it is hard for analysts to cover, hard for investors to appreciate and hard for the management to manage efficiently. I strongly believe this is a key reason why the stock price is still languishing at these levels.
The company used to be bogged down by high gearing in the past but after restructuring and divestment of Katong Mall, they have brought themselves to a net cash position and more corporate restructuring seems to be on the cards from the company's latest result announcement.With the current price at $0.25, the company is trading at less than 10 times p/e with a NAV of $0.45. With their recent moves in replenishing their land bank in Singapore and China, expect analysts to start paying attention to Tuan Sing, putting this company onto the radar screens of investors.
For me, I really think Tuan Sing will continue to be underrated as long as it continues having such diversified businesses. However, I do think the company is going to restructure itself to focus more on its core business (property development and their tyre business) and probably hive off or spin off most of its other businesses. If they should do this, I really believe investors will open up their eyes and see the company in a different light. A target price of $0.36 is not unreasonable which translates to 20% to its NAV. So I would call this a strong buy for all value investors.
In my next post, I hope to cover my views on the market for next year. Pray hard I will be sober enough to write.
Have a great week ahead.
Best,
SVI
Before I go into the topic for today, I would like to apologise for not posting last weekend because if I did, some of you would have made good money on the stock I was going to write about. For those who benefited from the call, you are welcome. But anyone of you who smses me asking for contra or trading ideas, I will be charging 20% performance fee should you make money. I do not appreciate being asked such questions because I really dislike giving advice on short term trades, I do not like to have the pressure of giving a stock pick that will perform over 5 days. So let me state this clearly once and for all, NO MORE CONTRA advice! It is ok if you want me to give you ideas on stocks to buy and hold, because that is what investing is all about!
The stock I was intending to write about was STX OSV which has already gone up significantly from the price I was intending to call for. This is probably the IPO I liked most out of all the recent IPOs. I do believe it will continue to do well over the long term so do keep this on your watch lists and look for an attractive entry price. Goldman released a good report placing a target price of $1.54 on it. It is not surprising for Goldman to write good things for this stock because they are after all they are the IPO manager. Expect more positive reports to be released and more investors will jump on the bandwagon because there will be more credibility from a more neutral party.
This week, I am going to be doing a write up on a stock which my mum and dad would know about but younger investors would not even bother about it. This is a favor I am doing for someone who asked me to look into this stock. After looking through it, I was definitely impressed by the value in this company that is why I have decided to share it with all of you. Remember, this is definitely not the kind of stock that will move over the next few weeks or even months but this is one that has tons of value and will eventually deliver.
Tuan Sing Holdings Limited was established in 1969 and listed on the Singapore Stock Exchange in 1973. Over the years, the Company has expanded into multi-core businesses and broadened its presence in the region. Headquartered in Singapore, Tuan Sing now has over 70 subsidiaries, associated and jointly-controlled companies with a total workforce of more than 4,200 employees operating in various countries in the region.
Tuan Sing is involved in industrial manufacturing (tyres, packaging etc), hotel operations, property development, retail and electronics manufacturing. Now you know how diversified this company is. Currently, the company seems focused on taking on more property development projects, through their acquisition of Serene House and the land plot in Seletar. Earnings over the past year has been driven by property development while revenue has improved due to industrial segment.
Property Development
The company has been involved with property development for the longest time in Singapore and they have plenty of experience with that in China too. All their previous developments have been in prime areas in Shanghai. Their historical selection of land plots for development have been impressive and I do expect them to continue this great track record of land selection going forward.
Industrial Manufacturing
The Tyre and Auto Products unit has exclusive distributorship/rights for tyres from renowned manufacturers, namely GT Radial and Bias Tyres from Indonesia; GT Radial, Primewell and Runway Tyres from GiTi Group in China.
As the exclusive distributor for these established brands of tyre for selected countries in ASEAN, the unit distributes a wide range of tyres including passenger car radial tyres, truck and bus bias and radial tyres, as well as off-the road and industrial tyres. To complement its tyre business, the unit also markets Millennium wheels from Indonesia, GT wheels of Seyen Heavy Industryies in China, GT Lube, GT Batt and Yokohama brand batteries in ASEAN and China.
Hypak, a 98%-owned subsidiary, manufactures unlaminated and laminated polypropylene woven bags for products such as fertiliser, sugar, chemical, flour and feed meal.
Hotel operations (Hyatt Melbourne and Hyatt Regency Perth)
Hyatt Melbourne is a pre-eminent five star hotel in Melbourne
Within walking distance to the city's premier theatre, sporting venues, parks and convention centres
Won many international awards including recognition as Best Business Hotel in Melbourne 2000 by Asiamoney and Euromoney
547 guest rooms including 49 suites
Regency Club with 56 guest rooms for VIP accommodation
Hyatt Regency Perth includes five star Hyatt Regency Hotel, 23,000 square metres of office, retail and professional office tenancies, and a basement carpark
367 guest rooms including 32 suites
Regency Club with 68 guest rooms for VIP accommodation
Retail
The Group’s retail business comprises its 60% interest in the Pan-West group of companies, held through the Group’s wholly-owned subsidiary TS Planet Sports Pte Ltd.
Pan-West distributes and markets golf and golf-related lifestyle products in Singapore, Malaysia, and Indonesia. It also provides golf-related services such as custom fitting, professional coaching and after sales service. As a retailer, Pan-West operates 35 on-course and off-course outlets and concessionaires throughout the region.
Pan-West is the distributor of some of the top golfing brands in the world, amongst them, Callaway, Honma, Odyssey, Cleveland, Yamaha, Tour Edge, Cutter & Buck and Katana.
Electronics Manufacturing
Tuan Sing owns a 43.33% interest in an associated company, publicly listed Gul Technologies Singapore Ltd, a printed circuit board manufacturer with operations in Singapore and China.
GulTech is a manufacturer of double-sided, multi-layered and high-density printed circuit boards (PCBs). The company was listed on SESDAQ in March 1997 and was transferred to the main board of SGX in July 2000. GulTech has manufacturing plants in Suzhou and Wuxi, China.
Now you get the idea. When a company has this many businesses, it is hard for analysts to cover, hard for investors to appreciate and hard for the management to manage efficiently. I strongly believe this is a key reason why the stock price is still languishing at these levels.
The company used to be bogged down by high gearing in the past but after restructuring and divestment of Katong Mall, they have brought themselves to a net cash position and more corporate restructuring seems to be on the cards from the company's latest result announcement.With the current price at $0.25, the company is trading at less than 10 times p/e with a NAV of $0.45. With their recent moves in replenishing their land bank in Singapore and China, expect analysts to start paying attention to Tuan Sing, putting this company onto the radar screens of investors.
For me, I really think Tuan Sing will continue to be underrated as long as it continues having such diversified businesses. However, I do think the company is going to restructure itself to focus more on its core business (property development and their tyre business) and probably hive off or spin off most of its other businesses. If they should do this, I really believe investors will open up their eyes and see the company in a different light. A target price of $0.36 is not unreasonable which translates to 20% to its NAV. So I would call this a strong buy for all value investors.
In my next post, I hope to cover my views on the market for next year. Pray hard I will be sober enough to write.
Have a great week ahead.
Best,
SVI
Friday, December 3, 2010
Bank of Ireland had a great run, now for Citi to show more strength.
Tis the season to be jolly. I believe that may be the case going into December this year. I certainly hope I will be in a good healthy state going into this Christmas season to fully take part in the festivities. Fingers crossed, work will also slow down. It has really been a tough first week of the last month of the year and the light at the end of the tunnel in terms of work is totally non existent.
Last week, my schedule was so tight that I had no time to really put in a meaningful post. The market reactions to the various headlines was just frustrating to me because so many people were acting like idiots selling on the pointless news flow published by their equals. I keep telling investors to stop reading too much into the over sensationalised headlines but no one would listen. Just like what the great Warren Buffett always says, " the daily gyrations of the market is just noise." It does not take a genius to do well in the market, it takes someone who is calm and unemotional. Basically what that means is that a comatose person should do better than an emotional genius in investing. Ok I am being a little extreme but no one can really disagree with me on this point right?
The market started December with a bang, a strong rebound for most markets except China. Top analysts and strategists are still looking really silly by being so bullish on China over the past 12 months with it still logging in -12% returns this year on the Shanghai Composite.
Last week, I mentioned about the bank of Ireland being irrationally cheap and it has already risen 30% this week. For those brave souls out there, good for you. Investing takes a sound mind and a good gut to be successful. I would have liked to write about a particular stock today but my health is really failing me these days. The soul is willing but the flesh is weak.
Today lets talk about how well some of my picks have done this year. We had another buyout offer for one of my calls, Reyoung at $0.53. What price did I call it at? How about Bright World Precision hitting a 52 week high last week? They did not move overnight but they sure did well if you held it for 12 months. Another illustration on how bottom up stock picking actually delivers over the longer term. Be patient. I know of a close friend of mine who kept complaining that Reyoung had no movement and totally under performing the market. Well look who has outperformed the market over the past 12 months?
So is this current 1 week old rally for real? Is Santa Claus going to deliver a nice rally this December? I think we could end the year on a strong note. We have good ol' Benny Bernanke going on "60 minutes" talking about how the US recovery is going to take another 5 years to get back on track and how he feels inflation can be controlled when the time comes to control it. 100% sure about it? My goodness, talk about being confident. What does this all mean? He is just going to make it easier to borrow money than for you to bring yourself to deposit it. So its all green light for more asset inflation. What does he believe in? He believes in the wealth effect of asset inflation translating to higher consumer spending and leading to more jobs created. So which asset class has the broadest reach across the economy? Stocks of course. Wa la...we have the answer to bringing the US economy back from the dead? Push up stock prices so to make people feel richer and we will see economic activity come back to life. But is this really a long term fix or just a short term
It looks like Bush era tax cuts will be extended to over the next two years, this is another plus point for the economy and should provide another positive boost for the markets. I am impressed on how the Eurozone is looking for more austerity measures while the US is trying their best to get more spending. This gives economists a very good basis for comparison between the 2 developed super powers. Only time will tell which approach will work. My gut tells me, Trichet is still going to come out looking like a genius, but who am I to say?
For those people who like the Bank of Ireland pick, I am not calling for a strong buy on Citigroup because I feel $5 is not too far from now. Why? Cos the Fed has finished selling their last tranche at $4.35 and now there will be no worries over a possible share overhang. Citi is still trading below its book value and at a very reasonable price to earnings of 18 times. So I am calling for it as my key call and lets see how it works out.
I took 5 days to finish this post because time is really becoming a rare commodity for me. The current price of Bank of Ireland is 60% higher from time I called for it last weekend. This shows you how crazy markets can be. The overshooting theory will never go out of fashion with irrationality being a deep rooted flaw of humans.
Sorry for the lack of constructive things to say over the past two weeks, but balancing work, life and study is no easy feat. I have a couple of stock ideas to write about but I just do not have time to do so. Well tough....
Have a great remaining week ahead!
Best,
SVI
Last week, my schedule was so tight that I had no time to really put in a meaningful post. The market reactions to the various headlines was just frustrating to me because so many people were acting like idiots selling on the pointless news flow published by their equals. I keep telling investors to stop reading too much into the over sensationalised headlines but no one would listen. Just like what the great Warren Buffett always says, " the daily gyrations of the market is just noise." It does not take a genius to do well in the market, it takes someone who is calm and unemotional. Basically what that means is that a comatose person should do better than an emotional genius in investing. Ok I am being a little extreme but no one can really disagree with me on this point right?
The market started December with a bang, a strong rebound for most markets except China. Top analysts and strategists are still looking really silly by being so bullish on China over the past 12 months with it still logging in -12% returns this year on the Shanghai Composite.
Last week, I mentioned about the bank of Ireland being irrationally cheap and it has already risen 30% this week. For those brave souls out there, good for you. Investing takes a sound mind and a good gut to be successful. I would have liked to write about a particular stock today but my health is really failing me these days. The soul is willing but the flesh is weak.
Today lets talk about how well some of my picks have done this year. We had another buyout offer for one of my calls, Reyoung at $0.53. What price did I call it at? How about Bright World Precision hitting a 52 week high last week? They did not move overnight but they sure did well if you held it for 12 months. Another illustration on how bottom up stock picking actually delivers over the longer term. Be patient. I know of a close friend of mine who kept complaining that Reyoung had no movement and totally under performing the market. Well look who has outperformed the market over the past 12 months?
So is this current 1 week old rally for real? Is Santa Claus going to deliver a nice rally this December? I think we could end the year on a strong note. We have good ol' Benny Bernanke going on "60 minutes" talking about how the US recovery is going to take another 5 years to get back on track and how he feels inflation can be controlled when the time comes to control it. 100% sure about it? My goodness, talk about being confident. What does this all mean? He is just going to make it easier to borrow money than for you to bring yourself to deposit it. So its all green light for more asset inflation. What does he believe in? He believes in the wealth effect of asset inflation translating to higher consumer spending and leading to more jobs created. So which asset class has the broadest reach across the economy? Stocks of course. Wa la...we have the answer to bringing the US economy back from the dead? Push up stock prices so to make people feel richer and we will see economic activity come back to life. But is this really a long term fix or just a short term
It looks like Bush era tax cuts will be extended to over the next two years, this is another plus point for the economy and should provide another positive boost for the markets. I am impressed on how the Eurozone is looking for more austerity measures while the US is trying their best to get more spending. This gives economists a very good basis for comparison between the 2 developed super powers. Only time will tell which approach will work. My gut tells me, Trichet is still going to come out looking like a genius, but who am I to say?
For those people who like the Bank of Ireland pick, I am not calling for a strong buy on Citigroup because I feel $5 is not too far from now. Why? Cos the Fed has finished selling their last tranche at $4.35 and now there will be no worries over a possible share overhang. Citi is still trading below its book value and at a very reasonable price to earnings of 18 times. So I am calling for it as my key call and lets see how it works out.
I took 5 days to finish this post because time is really becoming a rare commodity for me. The current price of Bank of Ireland is 60% higher from time I called for it last weekend. This shows you how crazy markets can be. The overshooting theory will never go out of fashion with irrationality being a deep rooted flaw of humans.
Sorry for the lack of constructive things to say over the past two weeks, but balancing work, life and study is no easy feat. I have a couple of stock ideas to write about but I just do not have time to do so. Well tough....
Have a great remaining week ahead!
Best,
SVI
Sunday, November 28, 2010
Korea? Ireland? Portugal? Spain? What a waste of time. Just focus on Christmas shopping.
Here I am sitting in front of my tv wondering what I should write about for this week's post Not that there is nothing to write about, especially during a week when the markets have gone through a hellish ride. We had bailouts and artillery firing on the menu and that is still not all. Throw in property curbs in HK affecting sentiment there and interest rate worries in China, no wonder the market did not have a good time.
Bear in mind, volume has been thin during the past week due to thanksgiving holidays and Christmas getting close. Fund managers out there are asked to close their books for the year by this time and that also explains for the profit taking in the market. For retail investors out there beware. Sell at your own peril. I do not want to sound like a broken record by calling for an overweight on equities. That is why I really do not know what to write about this week.
All I can say is, if you are worried about the Euro crisis, then you have fallen for the fear mongering exploits of the media once again. Think about it. Did you all read about Portugal and Spain during the May sell down? Are the current headlines new to you? Why was there nothing written about the PIGS countries during the August, September and October run up in the markets? When the markets are doing well, the good news flows like water out of a tap, but when the markets start to show some red, the bad news flows like sewage out of a sewer. Be objective. Be rational.
Everyone is talking about how the Irish govt will need to bail out the Irish banks by nationalising them. There is really some suspicion on my part on whether all the banks really need the bailout if the media did not create so much fear with their over-sensationalised headlines. Yes, Allied Irish will need a bailout, but according to Bloomberg's data, Bank of Ireland has a tier one capital of close to the required 12 percent. Why would this bank need a bailout? But with so many headlines revolving around the problems in the banks, who wouldn't go to the bank to withdraw all their money from the banks? Any rational person would do it. Bank of Ireland now trades at 0.06 times price to book and even if the Irish govt takes an 85% stake in the bank, up from their current holdings of 36%, the book value of the bank would still be close to Euro $1.34. This is one of the main reasons to why I really dislike the media for their irresponsible reporting without finding out all the facts. Causing unnecessary panic to sell more news papers.
What about the North Koreans shelling artillery fire onto the OBSCURE island called Yeonpyeong? The markets all reacted really badly when the news broke on the exchange of fire between the two Koreas. Most markets fell close to 2% on that day. What happened the next day? A full rebound in most markets. To make things worse, Korea's Kospi only fell less than 0.5% on the news while Singapore fell 2%. The markets obviously over-reacted to the news and the way the STI reacted, you would have thought it was us that got fired on. My goodness. The media reminds me of the story of the boy that cried wolf.
Since I started working in the investment industry, the North Koreans have fired on their Southern counterparts every 6-12 months. So I really am sick of the markets over-reacting to such trivial matters. They sunk a South Korean ship earlier this year and 46 people died, what happened? NOTHING. So 4 soldiers dying this time is really an improvement from the last incident. Moral of the story, do not worry about a full blown war resulting from these incidents. The South Koreans have too much to lose to go into a war. Not when they are making tons of money selling consumer goods like LED TVs, mobile phones and cars to the world. Unless there is a direct attack on Seoul, do not bother about such silly incidents. They are non events.
Anyway its getting late on a Sunday night and I really do not think there are any issues of significance which I should write too much about. Just keep the faith and buy more stocks. It will do you good over the next 12 months. Take all the stocks you have bought off your watch list and enjoy the Christmas holidays.
Injured my finger during basketball so will not dwell on too many things this week.
Till the next week, have a great week ahead!
Best,
SVI
Bear in mind, volume has been thin during the past week due to thanksgiving holidays and Christmas getting close. Fund managers out there are asked to close their books for the year by this time and that also explains for the profit taking in the market. For retail investors out there beware. Sell at your own peril. I do not want to sound like a broken record by calling for an overweight on equities. That is why I really do not know what to write about this week.
All I can say is, if you are worried about the Euro crisis, then you have fallen for the fear mongering exploits of the media once again. Think about it. Did you all read about Portugal and Spain during the May sell down? Are the current headlines new to you? Why was there nothing written about the PIGS countries during the August, September and October run up in the markets? When the markets are doing well, the good news flows like water out of a tap, but when the markets start to show some red, the bad news flows like sewage out of a sewer. Be objective. Be rational.
Everyone is talking about how the Irish govt will need to bail out the Irish banks by nationalising them. There is really some suspicion on my part on whether all the banks really need the bailout if the media did not create so much fear with their over-sensationalised headlines. Yes, Allied Irish will need a bailout, but according to Bloomberg's data, Bank of Ireland has a tier one capital of close to the required 12 percent. Why would this bank need a bailout? But with so many headlines revolving around the problems in the banks, who wouldn't go to the bank to withdraw all their money from the banks? Any rational person would do it. Bank of Ireland now trades at 0.06 times price to book and even if the Irish govt takes an 85% stake in the bank, up from their current holdings of 36%, the book value of the bank would still be close to Euro $1.34. This is one of the main reasons to why I really dislike the media for their irresponsible reporting without finding out all the facts. Causing unnecessary panic to sell more news papers.
What about the North Koreans shelling artillery fire onto the OBSCURE island called Yeonpyeong? The markets all reacted really badly when the news broke on the exchange of fire between the two Koreas. Most markets fell close to 2% on that day. What happened the next day? A full rebound in most markets. To make things worse, Korea's Kospi only fell less than 0.5% on the news while Singapore fell 2%. The markets obviously over-reacted to the news and the way the STI reacted, you would have thought it was us that got fired on. My goodness. The media reminds me of the story of the boy that cried wolf.
Since I started working in the investment industry, the North Koreans have fired on their Southern counterparts every 6-12 months. So I really am sick of the markets over-reacting to such trivial matters. They sunk a South Korean ship earlier this year and 46 people died, what happened? NOTHING. So 4 soldiers dying this time is really an improvement from the last incident. Moral of the story, do not worry about a full blown war resulting from these incidents. The South Koreans have too much to lose to go into a war. Not when they are making tons of money selling consumer goods like LED TVs, mobile phones and cars to the world. Unless there is a direct attack on Seoul, do not bother about such silly incidents. They are non events.
Anyway its getting late on a Sunday night and I really do not think there are any issues of significance which I should write too much about. Just keep the faith and buy more stocks. It will do you good over the next 12 months. Take all the stocks you have bought off your watch list and enjoy the Christmas holidays.
Injured my finger during basketball so will not dwell on too many things this week.
Till the next week, have a great week ahead!
Best,
SVI
Sunday, November 21, 2010
The cheapest Chinese winery stock in the world! China Ouhua Winery RM$0.815
Question. Have you ever drank red wine from China? I have. What did I think of it? It was definitely no Bordeaux but it was decent. I love their names though. We have Great Wall, Dynasty etc. Wines named with the grandest of names. You have to hand it to the Chinese when it comes to naming things. Its either too cheesy or it is as grand as royalty. Why did I ask this question? I know last year one of my key calls was Trump Dragon, a Baijiu distiller listed in Singapore. That stock has done well for me and here I am once again calling for another alcohol stock. This time, I am going with a different drink, one that has a significantly larger international audience.
I know some of you must be thinking that I am a big alcohol lover. I do admit, I used to indulge in reckless drinking during my days in university but now I am a reformed alcoholic. No alcoholic anonymous groups for me but I used to border on a possibility of becoming a member. Now, I just like to invest in them. Why? A few reasons. Alcohol is one of the few legal drugs, where open consumption is allowed. The other is coffee. If you consider gambling in a more tangible sense, it can also be considered as a drug. In short, as long as there is the possibility of addiction involved, it is a fantastic business.
The stock I want to introduce to all of you is China Ouhua Winery. It has only recently listed in Malaysia and some of you may wonder why a Chinese winery would choose to list in our favourite neighbour's stock market. The reason given was that the listing proceedings in China takes to long and the company is looking to gain financing quickly for their expansion plans. The company's growth is slowing down due to its capacity limits and that is why it is looking to expand its production capacities to cope with the fast growing market.
Fun fact: China's consumption of wine will reach 1 billion bottles by 2012, but that would mean they would still only be 7th largest wine consumer in the world. France being the largest. Now that explains why the French are always so drunk all the time.
China Ouhua Winery's business involves:
* Production and distribution of Fazenda Ohua Wines produced from locally sourced wine materials and grapes including grapes from their very own vineyards
* Production and distribution of International Wines which are sourced from various wine-growing regions outside the PRC such as France, Australia, Spain, Chile and Germany through local PRC wine material traders
* Development of Fazenda Ohua Wines and International Wines and the marketing of these wines throughout PRC
* Research & Development for new and diverse offerings of wine
* Product design, product packaging and branding
They are one of the producers and distributors of quality grape wines in the PRC, with a portfolio that includes well-recognised proprietary wine labels distributed with approximately 3,100 point-of-sales across the PRC. Their business operations span across the entire value chain of the wine industry, from the cultivation of vineyards and production of wines to the strategic management of distribution networks for our wine labels, adding value at each stage of the value chain. The Group sold approximately 7,700 tonnes of wines throughout the PRC in 2009.
They produce red and white wines which they distribute for sale under their flagship Fazenda Ohua Wine labels. They distribute red and white wines produced from wine of French, Australian, Spanish, Chilean and German origins under their International Wine labels. As at September 2010, the company offers approximately 87 and 60 varieties of wine under their local Fazenda Ohua Wine labels and International Wine labels respectively.
Ouhua's wines are primarily distributed for sale within the PRC through appointed master distributors, who in turn distribute these wines to end consumers via an extensive retail network of Fazenda Ohua specialty stores, which are managed by experienced and knowledgeable service staff trained by our in-house winemaker. Other distribution channels include direct sales to retail intermediaries such as hypermarkets, retail outlets and third party specialty stores that sell alcohol as well as food & beverage establishments such as restaurants, hotels and entertainment outlets.
As at September 2010, their distribution network encompasses 13 appointed master distributors, 113 Fazenda Ohua specialty stores (including nine (9) Ohua Château type stores and 104 Ohua Manor type stores that are operated and owned by these appointed master distributors and sub-distributors) and their wines are, retailed at approximately 3,100 point-of-sales spanning no less than 13 provinces and cities throughout the PRC.
Ouhua's wine estate comprising of winery and vineyards is situated in Yantai City, Shandong Province. Yantai is a coastal city located in the province of Shandong, where it enjoys a moderate winter and summer. It is at the same latitude as major vine cultivation regions in France and Italy and is reputed to be the best place in PRC to grow vines due to its plentiful rain and abundant sunshine, earning the city the moniker of "Oriental Bordeaux". The industrialised production of grape wine in Yantai has been established for more than 100 years and today, Yantai is known as the wine hub of the PRC.
As at September 2010, their winery has a production capacity of approximately 12,480 tonnes of wine per annum, and their own two (2) vineyards in the Yantai-Penglai locality span across cultivation areas of approximately 5,500 Mu (equivalent to approximately 3.67 million sq m) in aggregate.
Why do I like it. Valuation wise, I have been searching for a cheaper China winery stock in the world. Dynasty wines, Anhui Golden Seed Winery and China Foods are the few I could find on Bloomberg and guess what is the average P/E for them? 40 times! What do you think is Ouhua's? 7.8 times! Is that cheap or what? Yes yes, we need to place a discount to the Malaysian market compared to that of the HK and China markets. But does that mean we should trade at a 80% discount? Hell no! In their prospectus, the company also stated their 1H2010 results and at the rate they were growing, it is only trading at 5 times 2010 earnings. Now I was astonished by the valuation and I figured it has a lot to do with the small size of the company and also the fact that it is listed in Malaysia did not help. Nonetheless, most importantly, the company is very cheap and dealing in an industry that is growing exponentially.
The company has stated that they currently have 2-3% share of the Chinese wine market. Lets be realistic, growth wise the company will not be able to compete with the big boys unless they spend more on their branding and also their capacity. I will be happy if they maintain their market share because this is a market that is growing extremely quickly thus the company's business will be pegged to the growth the market. That alone we are talking about almost 20% per year. Personally, I think the stock has very little downside from this point and it is a good opportunity to take a stake in it now while it is consolidating at this price. This is my number one call right now and I need to apologise for not writing on this earlier, but I really have been too busy.
Take a closer look at this stock cos it will be worth it.
Best,
SVI
I know some of you must be thinking that I am a big alcohol lover. I do admit, I used to indulge in reckless drinking during my days in university but now I am a reformed alcoholic. No alcoholic anonymous groups for me but I used to border on a possibility of becoming a member. Now, I just like to invest in them. Why? A few reasons. Alcohol is one of the few legal drugs, where open consumption is allowed. The other is coffee. If you consider gambling in a more tangible sense, it can also be considered as a drug. In short, as long as there is the possibility of addiction involved, it is a fantastic business.
The stock I want to introduce to all of you is China Ouhua Winery. It has only recently listed in Malaysia and some of you may wonder why a Chinese winery would choose to list in our favourite neighbour's stock market. The reason given was that the listing proceedings in China takes to long and the company is looking to gain financing quickly for their expansion plans. The company's growth is slowing down due to its capacity limits and that is why it is looking to expand its production capacities to cope with the fast growing market.
Fun fact: China's consumption of wine will reach 1 billion bottles by 2012, but that would mean they would still only be 7th largest wine consumer in the world. France being the largest. Now that explains why the French are always so drunk all the time.
China Ouhua Winery's business involves:
* Production and distribution of Fazenda Ohua Wines produced from locally sourced wine materials and grapes including grapes from their very own vineyards
* Production and distribution of International Wines which are sourced from various wine-growing regions outside the PRC such as France, Australia, Spain, Chile and Germany through local PRC wine material traders
* Development of Fazenda Ohua Wines and International Wines and the marketing of these wines throughout PRC
* Research & Development for new and diverse offerings of wine
* Product design, product packaging and branding
They are one of the producers and distributors of quality grape wines in the PRC, with a portfolio that includes well-recognised proprietary wine labels distributed with approximately 3,100 point-of-sales across the PRC. Their business operations span across the entire value chain of the wine industry, from the cultivation of vineyards and production of wines to the strategic management of distribution networks for our wine labels, adding value at each stage of the value chain. The Group sold approximately 7,700 tonnes of wines throughout the PRC in 2009.
They produce red and white wines which they distribute for sale under their flagship Fazenda Ohua Wine labels. They distribute red and white wines produced from wine of French, Australian, Spanish, Chilean and German origins under their International Wine labels. As at September 2010, the company offers approximately 87 and 60 varieties of wine under their local Fazenda Ohua Wine labels and International Wine labels respectively.
Ouhua's wines are primarily distributed for sale within the PRC through appointed master distributors, who in turn distribute these wines to end consumers via an extensive retail network of Fazenda Ohua specialty stores, which are managed by experienced and knowledgeable service staff trained by our in-house winemaker. Other distribution channels include direct sales to retail intermediaries such as hypermarkets, retail outlets and third party specialty stores that sell alcohol as well as food & beverage establishments such as restaurants, hotels and entertainment outlets.
As at September 2010, their distribution network encompasses 13 appointed master distributors, 113 Fazenda Ohua specialty stores (including nine (9) Ohua Château type stores and 104 Ohua Manor type stores that are operated and owned by these appointed master distributors and sub-distributors) and their wines are, retailed at approximately 3,100 point-of-sales spanning no less than 13 provinces and cities throughout the PRC.
Ouhua's wine estate comprising of winery and vineyards is situated in Yantai City, Shandong Province. Yantai is a coastal city located in the province of Shandong, where it enjoys a moderate winter and summer. It is at the same latitude as major vine cultivation regions in France and Italy and is reputed to be the best place in PRC to grow vines due to its plentiful rain and abundant sunshine, earning the city the moniker of "Oriental Bordeaux". The industrialised production of grape wine in Yantai has been established for more than 100 years and today, Yantai is known as the wine hub of the PRC.
As at September 2010, their winery has a production capacity of approximately 12,480 tonnes of wine per annum, and their own two (2) vineyards in the Yantai-Penglai locality span across cultivation areas of approximately 5,500 Mu (equivalent to approximately 3.67 million sq m) in aggregate.
Why do I like it. Valuation wise, I have been searching for a cheaper China winery stock in the world. Dynasty wines, Anhui Golden Seed Winery and China Foods are the few I could find on Bloomberg and guess what is the average P/E for them? 40 times! What do you think is Ouhua's? 7.8 times! Is that cheap or what? Yes yes, we need to place a discount to the Malaysian market compared to that of the HK and China markets. But does that mean we should trade at a 80% discount? Hell no! In their prospectus, the company also stated their 1H2010 results and at the rate they were growing, it is only trading at 5 times 2010 earnings. Now I was astonished by the valuation and I figured it has a lot to do with the small size of the company and also the fact that it is listed in Malaysia did not help. Nonetheless, most importantly, the company is very cheap and dealing in an industry that is growing exponentially.
The company has stated that they currently have 2-3% share of the Chinese wine market. Lets be realistic, growth wise the company will not be able to compete with the big boys unless they spend more on their branding and also their capacity. I will be happy if they maintain their market share because this is a market that is growing extremely quickly thus the company's business will be pegged to the growth the market. That alone we are talking about almost 20% per year. Personally, I think the stock has very little downside from this point and it is a good opportunity to take a stake in it now while it is consolidating at this price. This is my number one call right now and I need to apologise for not writing on this earlier, but I really have been too busy.
Take a closer look at this stock cos it will be worth it.
Best,
SVI
Wednesday, November 17, 2010
A healthy correction. That is all.
Did not post anything over the weekend as I was being dragged into a wedding as a brother to suffer from humiliating challenges posed by a bunch of young girls looking to have fun. All in all a very interesting weekend but that meant not having the time to write anything on this blog.
Not that there is nothing to write about because we are having some really interesting news coming out from all the major markets and markets have gone into consolidation mode since last Friday. China has fallen 11% since last Friday and here I am licking my lips as stocks get cheaper for me to buy. You must be thinking, I must be nuts to want to buy stocks at this time when Chinese stocks are falling 4 percent per day. Well in my mind, the faster it drops, the faster we get over with it and then we can resume the way up. We have had a good run since September and it is about time to slow down and take a breather before the Capricorn effect takes its place in December and January. What the markets are doing now is just taking a break so that it can move further forward.
So what is causing the current weakness in the market? So many people are pointing the fingers at the Irish debt issue. But what is really new? Is this really going to cause us to go into another correction of the same magnitude of what we saw in May? No chance. Why? Because in May, the Eurozone peripheral countries sovereign debt problem had caught everyone by surprise and the shock of finding out how poorly managed the fiscal balance sheets of Greece were, created a panic in the markets. I do not know about all of you, but by now, I am really sick of reading about how the PIGS countries in Europe are all going bankrupt and getting their debt downgraded. You want to know what I think about this whole issue? I think it is just the Eurozone's way of competitive devaluation of the Euro. In one of my previous posts, I said, Europe was the only one that has not done anything to devalue their currency and now they have moved to action. They have achieved it with the Euro falling more than 3% over the past week. But this is not going to be a big deal, who the hell cares about Irish debt besides the Irish creditors? Please do not waste time reading about this. Pointless.
Next we have worries about the Chinese moving to contain inflation. So much speculation that the Chinese will move to raise interest rates again as early as 19 November. With the inflation number coming in much higher than expected, what do you expect? I remember writing about how Chinese inflation will be here a few months back. By the end of the day, they did raise most manufacturing job wages up by more than 40% on average, consumption is bound to shoot up. Is it surprising to you that food prices went up by more than 10% last month? So how do we contain inflation in food prices? By raising interest rates? No way! Who cares about interest rates when making the decision to buy more pork for dinner. Expect food price curbs from the Chinese government. Personally, I do not know how they are going to do it because this will never work in democratic countries but with a central government this will be much easier to implement. No one except the pricing committee will know the extent of these price curbs so lets just wait and see.
Markets are overreacting to these price curb measures by selling down most of the commodity stocks. The fears over more rate hikes also caused the banks to bear most of the brunt of the sell down. This is a buying opportunity, not a selling one. So hold onto your horses. This is a very healthy correction and it makes me even more optimistic because it shows there is still logic and rationality in the markets. The more linear the move the more fearful I become.
The USD is moving back up again and many people are saying this is the return of risk aversion from fears over the Eurozone problems resurfacing. I choose to disagree with this notion. Many people are not paying enough attention to the treasury yields when they are making such a statement. If there is really risk aversion, shouldn't treasury yields be going down especially since the ? But instead the 10 year treasury yield is at its highest point in months. Since QE2 was announced, there should be more pressure on yields to move down, but instead it has been moving up. If there was so much fear in the market, there should be tons of money flowing into treasuries but there is no such move right now. My view is that the USD is now moving up because of the shorts covering their positions. QE2 was hinted to the market 2 months ago and the shortists have been having a ball of a time making money from shorting USD. So now that the news is out, they are just busy covering their positions. It will not be long before the USD resumes it fall. And when that happens it is our cue to get back into the market.
Since this is just a midweek post, I am going to keep it short and simple. Just buy during this correction. We are going to have a good time over the next few months.
Have a good rest of the week.
Best,
SVI
Not that there is nothing to write about because we are having some really interesting news coming out from all the major markets and markets have gone into consolidation mode since last Friday. China has fallen 11% since last Friday and here I am licking my lips as stocks get cheaper for me to buy. You must be thinking, I must be nuts to want to buy stocks at this time when Chinese stocks are falling 4 percent per day. Well in my mind, the faster it drops, the faster we get over with it and then we can resume the way up. We have had a good run since September and it is about time to slow down and take a breather before the Capricorn effect takes its place in December and January. What the markets are doing now is just taking a break so that it can move further forward.
So what is causing the current weakness in the market? So many people are pointing the fingers at the Irish debt issue. But what is really new? Is this really going to cause us to go into another correction of the same magnitude of what we saw in May? No chance. Why? Because in May, the Eurozone peripheral countries sovereign debt problem had caught everyone by surprise and the shock of finding out how poorly managed the fiscal balance sheets of Greece were, created a panic in the markets. I do not know about all of you, but by now, I am really sick of reading about how the PIGS countries in Europe are all going bankrupt and getting their debt downgraded. You want to know what I think about this whole issue? I think it is just the Eurozone's way of competitive devaluation of the Euro. In one of my previous posts, I said, Europe was the only one that has not done anything to devalue their currency and now they have moved to action. They have achieved it with the Euro falling more than 3% over the past week. But this is not going to be a big deal, who the hell cares about Irish debt besides the Irish creditors? Please do not waste time reading about this. Pointless.
Next we have worries about the Chinese moving to contain inflation. So much speculation that the Chinese will move to raise interest rates again as early as 19 November. With the inflation number coming in much higher than expected, what do you expect? I remember writing about how Chinese inflation will be here a few months back. By the end of the day, they did raise most manufacturing job wages up by more than 40% on average, consumption is bound to shoot up. Is it surprising to you that food prices went up by more than 10% last month? So how do we contain inflation in food prices? By raising interest rates? No way! Who cares about interest rates when making the decision to buy more pork for dinner. Expect food price curbs from the Chinese government. Personally, I do not know how they are going to do it because this will never work in democratic countries but with a central government this will be much easier to implement. No one except the pricing committee will know the extent of these price curbs so lets just wait and see.
Markets are overreacting to these price curb measures by selling down most of the commodity stocks. The fears over more rate hikes also caused the banks to bear most of the brunt of the sell down. This is a buying opportunity, not a selling one. So hold onto your horses. This is a very healthy correction and it makes me even more optimistic because it shows there is still logic and rationality in the markets. The more linear the move the more fearful I become.
The USD is moving back up again and many people are saying this is the return of risk aversion from fears over the Eurozone problems resurfacing. I choose to disagree with this notion. Many people are not paying enough attention to the treasury yields when they are making such a statement. If there is really risk aversion, shouldn't treasury yields be going down especially since the ? But instead the 10 year treasury yield is at its highest point in months. Since QE2 was announced, there should be more pressure on yields to move down, but instead it has been moving up. If there was so much fear in the market, there should be tons of money flowing into treasuries but there is no such move right now. My view is that the USD is now moving up because of the shorts covering their positions. QE2 was hinted to the market 2 months ago and the shortists have been having a ball of a time making money from shorting USD. So now that the news is out, they are just busy covering their positions. It will not be long before the USD resumes it fall. And when that happens it is our cue to get back into the market.
Since this is just a midweek post, I am going to keep it short and simple. Just buy during this correction. We are going to have a good time over the next few months.
Have a good rest of the week.
Best,
SVI
Friday, November 5, 2010
Bernanke loves equities, so should we. Overweight equities all the way!
A few weeks ago, I was as per normal drinking at a watering hole near my office and a very unfortunate incident involving some red wine and a white shirt forced me to end the night early and make my way home. While I was walking to take a cab home, I bumped to an investment banker who was also making his way back. When he saw me, he quickly took the opportunity to get into a discussion on the USD with me. Apparently, he was caught in a dilemma on what to do with his USD. Now let me just say, I have been shocked by the number of people who are holding onto their USD with the hopes of a meaningful rebound. Someone once told me, "the trend is your friend", and the trend is down for the USD. So I think anyone reading this out there, do consider moving out of the USD and put it into something else.
Ok back to my conversation with the investment banker on the USD. One of the ideas I posed to his was to put it into HKD. What! Isn't the HKD pegged to the USD since 1983? So why would that make a difference. Here is how I see it. For a USD holder, there is no downside risk because the value of HKD will never fall against the USD if it remains pegged. However, if they do what I believe they will do, USD holders will get to enjoy at least a 10% one off gain as the HKD gets revalued.
Here is why I think it will happen. Currently, the Hong Kong dollar is tied to the US dollar and trades in a small band between HK$7.75 and HK$7.85. Recently, the Hong Kong currency has been trading at the upper end of that band, which has an impact on those who deal in large sums.
Take for example the Kuwait Investment Authority was committed to buy a HK$7.8bn stake in the listing last month of AIA, the Asian arm of US insurance group AIG. When the time came for the sovereign fund to write a cheque in Hong Kong dollars, it found that the amount of US dollars it had to pay had risen substantially from its original estimate.
The way the Hong Kong dollar has been trading at the top of its band as an indication of the pressure the currency is under to rise, and I really expect the peg to be dropped within the next 3 years.
Analysts say it is usually problematic when a strong economy has a weak currency. Thanks to the peg, Hong Kong is importing its monetary policy from the US. But the American policy of zero interest rates to stimulate a listless economy is hardly appropriate for an economy that is growing at a rate of more than 6 per cent a year, say analysts. And while the US is desperately attempting to boost asset prices, Hong Kong’s property prices are already high and rising. With their largest trading partner being China, importing RMB goods with a weakening HKD is just going to be inflationary for Hong Kong.
If the peg were to disappear tomorrow, many analysts forecast that the Hong Kong dollar would appreciate by a minimum of 10-15 per cent.
Hong Kong is well on its way to becoming a de facto dual currency centre as China continues to take steps to internationalise the renminbi. The increase in Chinese renminbi circulation would give rise to a dual currency system in Hong Kong and over time this could pave the way for an eventual HKD/RMB peg.
In conclusion, there is still hope for USD reference currency holders.
Ok back to the events of the week. Everything went according to plan this week, with the Republicans retaking the house and the Obama going through a humiliating defeat in the midterm elections. The QE2 package was more than expected and for a longer period of time. The market cheered and we had a strong rally which many observers believe the market will continue to rally. The last QE move was 1.6 trillion and the global markets rallied 75% from their lows. So the 15% returns over the past 2 months since the Fed signalled QE2 looks to be a preview of more to come.
Non-farm payrolls came in better than expected with 151k new jobs created. This was very much better than expected and the first positive month of jobs growth since May 2010. Although it is good news, the market did not take it that well because positive economic data means the Fed may choose to do less QE than was declared. One funny point which I feel compelled to state in this post was Bernanke's speech pointing out stock prices were low. We always knew that Greenspan always supported strong stock prices with the "Greenspan Put" but to have a Fed chief state that he wanted stock prices higher, isn't that comforting? Hahaha.
The last time there was so much cheap money, it was the Japanese that led the way, with tons of cheap money through their zero interest rate policy. But compared to the US, the Japanese has been more held back than the US. The difference between the two is the culture. The Japanese corporations have a more prudent attitude towards investing compared to the US corporates. Why? Because they have learnt from their lessons in the past when corporate Japan was busy buying up corporate America. With the introduction of cheap money in Japan came the arbitrage vultures profiting from "carry trades" on the yen. That went on for many many years. With the US getting into this trouble, the yen carry trade has been unwounded (that is on of the key reasons why the yen has been appreciating so quickly). Now the USD carry trade has started and never has the world see so much money flooding the market. It is just scary to think about it. Asset price inflation is all but a sure thing.
Right after the Fed announced their decision, Coca Cola went out and issued 3 year notes to 4.5 billion over 3 years at less than 1 percent. Expect to see more large corporations to go out and raise money at such a cheap rate. This is going to be a trend and what is going to happen is more merger and acquisition action. To me, that is going to be the key driver for the stock market going forward. We will see more market leaders looking to acquire their smaller competitors because it is very easy and cheap for them to raise money due to their size. With interest rates going at less than 1%, almost every acquisition is going to be yield accretive. Also the valuations offered in takeovers can be higher because it is not difficult to attain higher returns over the low cost they have to pay for financing.
What this means is valuations will be richer and many industries may see price earnings re rating over the next few quarters. Although I do not think it is sustainable, but with so much money sloshing around we really do not know when the party will end. So with this outlook, I am going to reiterate my call for an overweight in equities with little downside risks in over the next 6 months and to steer away from bonds. The party has just begun for us and lets enjoy it while it lasts.
Best,
SVI
Ok back to my conversation with the investment banker on the USD. One of the ideas I posed to his was to put it into HKD. What! Isn't the HKD pegged to the USD since 1983? So why would that make a difference. Here is how I see it. For a USD holder, there is no downside risk because the value of HKD will never fall against the USD if it remains pegged. However, if they do what I believe they will do, USD holders will get to enjoy at least a 10% one off gain as the HKD gets revalued.
Here is why I think it will happen. Currently, the Hong Kong dollar is tied to the US dollar and trades in a small band between HK$7.75 and HK$7.85. Recently, the Hong Kong currency has been trading at the upper end of that band, which has an impact on those who deal in large sums.
Take for example the Kuwait Investment Authority was committed to buy a HK$7.8bn stake in the listing last month of AIA, the Asian arm of US insurance group AIG. When the time came for the sovereign fund to write a cheque in Hong Kong dollars, it found that the amount of US dollars it had to pay had risen substantially from its original estimate.
The way the Hong Kong dollar has been trading at the top of its band as an indication of the pressure the currency is under to rise, and I really expect the peg to be dropped within the next 3 years.
Analysts say it is usually problematic when a strong economy has a weak currency. Thanks to the peg, Hong Kong is importing its monetary policy from the US. But the American policy of zero interest rates to stimulate a listless economy is hardly appropriate for an economy that is growing at a rate of more than 6 per cent a year, say analysts. And while the US is desperately attempting to boost asset prices, Hong Kong’s property prices are already high and rising. With their largest trading partner being China, importing RMB goods with a weakening HKD is just going to be inflationary for Hong Kong.
If the peg were to disappear tomorrow, many analysts forecast that the Hong Kong dollar would appreciate by a minimum of 10-15 per cent.
Hong Kong is well on its way to becoming a de facto dual currency centre as China continues to take steps to internationalise the renminbi. The increase in Chinese renminbi circulation would give rise to a dual currency system in Hong Kong and over time this could pave the way for an eventual HKD/RMB peg.
In conclusion, there is still hope for USD reference currency holders.
Ok back to the events of the week. Everything went according to plan this week, with the Republicans retaking the house and the Obama going through a humiliating defeat in the midterm elections. The QE2 package was more than expected and for a longer period of time. The market cheered and we had a strong rally which many observers believe the market will continue to rally. The last QE move was 1.6 trillion and the global markets rallied 75% from their lows. So the 15% returns over the past 2 months since the Fed signalled QE2 looks to be a preview of more to come.
Non-farm payrolls came in better than expected with 151k new jobs created. This was very much better than expected and the first positive month of jobs growth since May 2010. Although it is good news, the market did not take it that well because positive economic data means the Fed may choose to do less QE than was declared. One funny point which I feel compelled to state in this post was Bernanke's speech pointing out stock prices were low. We always knew that Greenspan always supported strong stock prices with the "Greenspan Put" but to have a Fed chief state that he wanted stock prices higher, isn't that comforting? Hahaha.
The last time there was so much cheap money, it was the Japanese that led the way, with tons of cheap money through their zero interest rate policy. But compared to the US, the Japanese has been more held back than the US. The difference between the two is the culture. The Japanese corporations have a more prudent attitude towards investing compared to the US corporates. Why? Because they have learnt from their lessons in the past when corporate Japan was busy buying up corporate America. With the introduction of cheap money in Japan came the arbitrage vultures profiting from "carry trades" on the yen. That went on for many many years. With the US getting into this trouble, the yen carry trade has been unwounded (that is on of the key reasons why the yen has been appreciating so quickly). Now the USD carry trade has started and never has the world see so much money flooding the market. It is just scary to think about it. Asset price inflation is all but a sure thing.
Right after the Fed announced their decision, Coca Cola went out and issued 3 year notes to 4.5 billion over 3 years at less than 1 percent. Expect to see more large corporations to go out and raise money at such a cheap rate. This is going to be a trend and what is going to happen is more merger and acquisition action. To me, that is going to be the key driver for the stock market going forward. We will see more market leaders looking to acquire their smaller competitors because it is very easy and cheap for them to raise money due to their size. With interest rates going at less than 1%, almost every acquisition is going to be yield accretive. Also the valuations offered in takeovers can be higher because it is not difficult to attain higher returns over the low cost they have to pay for financing.
What this means is valuations will be richer and many industries may see price earnings re rating over the next few quarters. Although I do not think it is sustainable, but with so much money sloshing around we really do not know when the party will end. So with this outlook, I am going to reiterate my call for an overweight in equities with little downside risks in over the next 6 months and to steer away from bonds. The party has just begun for us and lets enjoy it while it lasts.
Best,
SVI
Saturday, October 30, 2010
Crocodile skins for luxury goods? Lucrative? Just visit Hermes. Heng Long International $0.32
This week went as per what I expected in the market. We could have just closed all markets this week and still be in the same place as we ended on Friday. As the world waits intently for the results of the mid-term elections and the Fed decision on the almost stale story of QE2. I would not even dare to predict what will the markets be like this coming week. It is really any one's guess on whether we climb to new highs or plunge to correction mode. Technical analysts are going to tell you its time for the market to take a breather but as per what my boss calls technical analysts, vodoo specialists, there is no way that technical analysis is an exact science.
Before I start on my discussion topic for this week, I would like to thank my very good friend "Earn Money Online" for his very kind words on my stock picks. I have to say the Thomson Medical call was an inspired one and I am very proud of it. I remember, after I made the call 5 weeks ago, the stock fell and my friend sent me an email telling me that some analyst called for a "Hold" on the stock and asked me whether I was wrong this time. Well I think it shows that particular analyst can take his report and shove it into a place where the sun does not ever shine. Considering the offer was made at such a large premium to the closing price on Friday, my call for value on the stock was more than accurate. Babies are IN!!!! No not really, especially in my household. But to all those people looking to deliver their kids at Thomson Medical going forward, I would like to wish good luck on the fees.
Now lets see what I can pull out of bag this week. I have to apologise to those who went with my Sarin call and lost money. I do think that it is rather unfortunate that it has fallen more than 20 percent since their profit guidance earlier this month and the fact that they said the profits are going to fall significantly from the previous quarter sounded rather ominous. What in the world did they mean by "significantly"? I went around and did a survey on what people's interpretation on the words "significantly lower". Interestingly enough, I got a very wide range from my sample size of people. The indicated range actually went from 20% all the way to 80%. Personally, I placed a 80% fall in the profits for the company in 3Q2010 and projected an improvement in 4Q2010 and I still came out with a 10 times p/e valuation. That is why I have chosen not to cut losses on my position and wait patiently for the results to come out and see what the management has to say.
This week I am looking for a stock for myself to invest in for the longer term. For my own personal account, this year has been an awful year tracking only market gains and not creating excess alpha which I should be. Now that I have missed the boat on Thomson Medical, it is back to the drawing board for me. After doing my usual screening, I saw a few rather interesting candidates that aroused my curiousity. But given my ridiculous schedule I have only been able to look at one in closer detail. For those who have been following this blog over the past one year, they will know how I think. The more obscure and niche the business is, the more I am interested in the company. I also do not like companies that are heavily covered by analysts. If it is heavily researched that means the stock is a lot more efficiently priced and also more susceptible to what I call "noise". This "noise" refers to the glitches that happen over a company's growth. The volatility in the stock price will be significantly higher because of the number of different reports that are released by different analysts with different mindsets and interpretation of any new developments with the company.
Before I start, I would like to tell a story of me visiting an Hermes outlet with a friend who was buying a scarf for his girlfriend. I walked up to the counter and asked to look at a really cool looking wallet made from crocodile skin. Without even thinking I asked how much it was, totally expecting a number around the region of S$2-$5k. Guess what was the number? S$17k! For a wallet? I would be willing to sell my skin if it was worth that much! Ok jokes aside, this is how I will lead in to my latest pick for all of you. So here it is, my latest stock pick. Heng Long International.
Heng Long is one of the five top-tier tanneries of crocodilian leather in the world, with an entrenched position in the global supply chain of crocodilian skins and leather used by the luxury and high-end fashion industry.
Their principal business activities are primarily sourcing, tanning and processing of a wide range of raw crocodilian skins into crusts and high-end finished crocodilian leather for supply to the luxury and fashion industry where their products command a premium price.
They have an aggregate production area of approximately 6,605 sq m with a capacity ranging between 200,000 and 300,000 crocodilian skins per annum.
Their finished high-end crocodilian leather is sold directly or through distributorship agreements to luxury and fashion product manufacturers in Europe, United States, Asia, South America, Africa and Australia for use in the manufacture of handbags, watchstraps, boots, garments and other fashion accessories.
Around 49% of their revenue is derived from Europe, the bulk of which is from sales of farmed alligator leather used by high-end watchstrap makers catering to luxury watch brands.
The other key segment customers (either direct or indirect) in Europe includes luxury brand leather goods manufacturers and fashion houses such as Prada and Stefano Ricci.
Asia is their second largest market segment contributing approximately 42% of total revenue. Major customers in Asia include Kwanpen, a well-known local luxury brand of crocodilian leather goods with retail outlets in important cities in Asia, and other leather goods makers in the PRC and Japan catering to the Japanese consumers, as well as leather goods makers in South Korea catering to its domestic market.
Sales to the Americas and the rest of the world contributed the remaining 9% of revenue, with a significant portion of business from the Americas currently being derived from makers of western fashion boots and belts using skins of the caiman species.
What I liked about it from the revenue point of view was that the Asia segment has grown from 24% to 42% in 3 years. It is important that the company gets more exposure to the Asian markets as the demand for luxury goods are growing much faster and trust me, you will want to ride this trend. Consumer stocks in Asia have been rising this past year on an average of 40% or higher. Many people are now calling for consumer stocks to trade at more than 35 times p/e. I do admit it is rather excessive, but we are in the middle of a fast growing secular trend, ride it hard. It all started with the consumer staples stocks, soon it will move to the consumer discretionary space. Do not underestimate this trend because by the time you are convinced, its too late.
Right now, Heng Long is only on the road to recovery. The stock is trading at 32 times p/e but its revenue and profits are no where close to their 2008 levels. YTD revenues only stand at S$23 million and profits are S$2.4 million, that is for the first 2 quarters only. In 2008, revenues were S$68 million and profits were S$11.4 million. I believe we will be buying a major turnaround story in Heng Long. Forward earnings wise, I think this levels are reflecting half the current p/e multiple. If that is the case, we are looking at a much higher price for the stock. Margins are stabilising at 25.4% and this is still a very decent margin even though its still lower than the mid 30s seen in 2007-2008.
Lets look at the market capitalisation for the company, it stands at S$89.78 million and if the profits normalise back to S$11 million, we would only trade at less than 9 times p/e. Also the fact that dividends amounted to 1.2 cents in 2008, that translates to 3.4% dividend yield. For a penny stock of this size that is pretty impressive. Of course, you may argue that I am looking into the past for clues on the performance of this company, but the fact that this is a company that has been around for the better part of 50 years, I believe this is a story that is going to last.
Currently, the company trades at 1.1 times price to book value and it is something that I am very comfortable with. Thus this will be my latest buy call and I believe I will be right on this one.
Have a great week ahead.
Best,
SVI
Before I start on my discussion topic for this week, I would like to thank my very good friend "Earn Money Online" for his very kind words on my stock picks. I have to say the Thomson Medical call was an inspired one and I am very proud of it. I remember, after I made the call 5 weeks ago, the stock fell and my friend sent me an email telling me that some analyst called for a "Hold" on the stock and asked me whether I was wrong this time. Well I think it shows that particular analyst can take his report and shove it into a place where the sun does not ever shine. Considering the offer was made at such a large premium to the closing price on Friday, my call for value on the stock was more than accurate. Babies are IN!!!! No not really, especially in my household. But to all those people looking to deliver their kids at Thomson Medical going forward, I would like to wish good luck on the fees.
Now lets see what I can pull out of bag this week. I have to apologise to those who went with my Sarin call and lost money. I do think that it is rather unfortunate that it has fallen more than 20 percent since their profit guidance earlier this month and the fact that they said the profits are going to fall significantly from the previous quarter sounded rather ominous. What in the world did they mean by "significantly"? I went around and did a survey on what people's interpretation on the words "significantly lower". Interestingly enough, I got a very wide range from my sample size of people. The indicated range actually went from 20% all the way to 80%. Personally, I placed a 80% fall in the profits for the company in 3Q2010 and projected an improvement in 4Q2010 and I still came out with a 10 times p/e valuation. That is why I have chosen not to cut losses on my position and wait patiently for the results to come out and see what the management has to say.
This week I am looking for a stock for myself to invest in for the longer term. For my own personal account, this year has been an awful year tracking only market gains and not creating excess alpha which I should be. Now that I have missed the boat on Thomson Medical, it is back to the drawing board for me. After doing my usual screening, I saw a few rather interesting candidates that aroused my curiousity. But given my ridiculous schedule I have only been able to look at one in closer detail. For those who have been following this blog over the past one year, they will know how I think. The more obscure and niche the business is, the more I am interested in the company. I also do not like companies that are heavily covered by analysts. If it is heavily researched that means the stock is a lot more efficiently priced and also more susceptible to what I call "noise". This "noise" refers to the glitches that happen over a company's growth. The volatility in the stock price will be significantly higher because of the number of different reports that are released by different analysts with different mindsets and interpretation of any new developments with the company.
Before I start, I would like to tell a story of me visiting an Hermes outlet with a friend who was buying a scarf for his girlfriend. I walked up to the counter and asked to look at a really cool looking wallet made from crocodile skin. Without even thinking I asked how much it was, totally expecting a number around the region of S$2-$5k. Guess what was the number? S$17k! For a wallet? I would be willing to sell my skin if it was worth that much! Ok jokes aside, this is how I will lead in to my latest pick for all of you. So here it is, my latest stock pick. Heng Long International.
Heng Long is one of the five top-tier tanneries of crocodilian leather in the world, with an entrenched position in the global supply chain of crocodilian skins and leather used by the luxury and high-end fashion industry.
Their principal business activities are primarily sourcing, tanning and processing of a wide range of raw crocodilian skins into crusts and high-end finished crocodilian leather for supply to the luxury and fashion industry where their products command a premium price.
They have an aggregate production area of approximately 6,605 sq m with a capacity ranging between 200,000 and 300,000 crocodilian skins per annum.
Their finished high-end crocodilian leather is sold directly or through distributorship agreements to luxury and fashion product manufacturers in Europe, United States, Asia, South America, Africa and Australia for use in the manufacture of handbags, watchstraps, boots, garments and other fashion accessories.
Around 49% of their revenue is derived from Europe, the bulk of which is from sales of farmed alligator leather used by high-end watchstrap makers catering to luxury watch brands.
The other key segment customers (either direct or indirect) in Europe includes luxury brand leather goods manufacturers and fashion houses such as Prada and Stefano Ricci.
Asia is their second largest market segment contributing approximately 42% of total revenue. Major customers in Asia include Kwanpen, a well-known local luxury brand of crocodilian leather goods with retail outlets in important cities in Asia, and other leather goods makers in the PRC and Japan catering to the Japanese consumers, as well as leather goods makers in South Korea catering to its domestic market.
Sales to the Americas and the rest of the world contributed the remaining 9% of revenue, with a significant portion of business from the Americas currently being derived from makers of western fashion boots and belts using skins of the caiman species.
What I liked about it from the revenue point of view was that the Asia segment has grown from 24% to 42% in 3 years. It is important that the company gets more exposure to the Asian markets as the demand for luxury goods are growing much faster and trust me, you will want to ride this trend. Consumer stocks in Asia have been rising this past year on an average of 40% or higher. Many people are now calling for consumer stocks to trade at more than 35 times p/e. I do admit it is rather excessive, but we are in the middle of a fast growing secular trend, ride it hard. It all started with the consumer staples stocks, soon it will move to the consumer discretionary space. Do not underestimate this trend because by the time you are convinced, its too late.
Right now, Heng Long is only on the road to recovery. The stock is trading at 32 times p/e but its revenue and profits are no where close to their 2008 levels. YTD revenues only stand at S$23 million and profits are S$2.4 million, that is for the first 2 quarters only. In 2008, revenues were S$68 million and profits were S$11.4 million. I believe we will be buying a major turnaround story in Heng Long. Forward earnings wise, I think this levels are reflecting half the current p/e multiple. If that is the case, we are looking at a much higher price for the stock. Margins are stabilising at 25.4% and this is still a very decent margin even though its still lower than the mid 30s seen in 2007-2008.
Lets look at the market capitalisation for the company, it stands at S$89.78 million and if the profits normalise back to S$11 million, we would only trade at less than 9 times p/e. Also the fact that dividends amounted to 1.2 cents in 2008, that translates to 3.4% dividend yield. For a penny stock of this size that is pretty impressive. Of course, you may argue that I am looking into the past for clues on the performance of this company, but the fact that this is a company that has been around for the better part of 50 years, I believe this is a story that is going to last.
Currently, the company trades at 1.1 times price to book value and it is something that I am very comfortable with. Thus this will be my latest buy call and I believe I will be right on this one.
Have a great week ahead.
Best,
SVI
Friday, October 22, 2010
G20 meetings, what an occasion. Always good to take a nice 2 day holiday.
Started the blog the moment I came back from a nice relaxing night at my favorite chill out joint. It is friday and here I am thinking about how to finish my blog post a little earlier this week to give myself a little more time during the weekend to maybe catch up on some reading. Time really flies past when a person is busy as hell. Scary thing is how time becomes the most precious commodity as one gets older. So Michael Douglas was right in Wall Street 2, time is truly something which we cannot get back once it has passed. As we come closer to the key date of November 3, when the Fed will decide on the quantum of QE2. This decision alone will determine whether the market will trend higher or take a breather all the way till the end of 2010. So lets all wait with abated breath and hope for "Helicopter" Ben to drop money from the heavens.
So why don't we start with what I am bullish on over the next 3 months. I will start with Energy. I believe oil prices will trend higher. I had a colleague ask me, why I was positive on the energy sector when demand is not expected to grow significantly as consumers continue to hold back their purchases in developed countries. I totally agreed with him that demand and supply is a key determinant for energy prices. But I also believe that when there is excess liquidity, the first and most obvious target for "hot money" is to look for safe bets and things that will have continuous and inelastic demand. Safe bets naturally are fixed income instruments like treasuries and bonds. They have already done well and whatever can be milked from fixed income has been squeezed out. So naturally, the money is in search of the next best thing....staples. Food, energy and other commodities that we need in our daily lives. If that is not a safe bet, I do not know what is.
Secondly, the last couple of times the US dollar index was at the 77.5 level, Nymex crude prices were at US$92 per barrel. So we have a US$10 trade up from current $81.13 level. That is more than 10% from here and energy related equities will provide a leveraged exposure for investors who are bullish on energy. Anadarko is my favorite stock in the US for energy exposure while in Asia, I really like Petrochina for their strong growth avenues. In our island country of Singapore, we have the 2 largest rig builders in the world, Keppel Corp and Sembmarine. Someone once asked me, why we would be such good rig builders when we have no oil...That is a very good question. I have no clue because I am not old enough to remember how our government decided on becoming market leaders in rig building. Amazing...but it shows, whatever Singapore decides to put their minds to do, they do it best. A little bit of patriotism on my part.
Markets were practically flat for the whole week with all focus on the G20 meeting going on during this weekend in Korea. We should all take this with a pinch of salt because G20 meetings are normally a weekend retreat for various central bank officials at a nice exotic resort. The most common topics discussed during the meetings should revolve around the quality of this year's wine crop and maybe a little on what is the latest investment opportunity. Nothing concrete ever comes out of the G20 meetings and do not expect any new surprises.
So I have decided to give you the excerpt on the meeting from AFP and add a few comments of my own. A little interpretation of the salient points from the meeting.
Main points of G20 ministers' statement
These are the key points of a statement issued Saturday by Group of 20 finance ministers and central bankers at the end of a two-day meeting in South Korea:
* Global economic recovery remains 'fragile and uneven' and downside risks remain. Advanced countries will implement 'clear, credible, ambitious and growth-friendly' consolidation plans, taking into account their own circumstances.
My comment: This sounds like a page out of the Federal Reserve's beige book report. What do they mean by "credible, ambitious and growth friendly" plus taking into account their own circumstances? The US can go ahead and devalue their currency because their situation is more dire while the rest should just let their currencies rise because they are in a better situation? I guess so.
* Members will move towards more market-determined exchange rate systems reflecting underlying economic fundamentals and 'refrain from competitive devaluation of currencies'. Advanced economies to be vigilant against excessive swings in exchange rates, to mitigate the risk of volatility in capital flows facing some emerging countries. International Monetary Fund to assess the wider systemic impact of nations' policies.
My comment: Just like what I said earlier. US can devalue while the rest cannot. But do not worry, the US will not devalue in a one off manner, instead they intend to let it devalue slowly through their little QE moves. There will no longer be any more breaking off the Bretton Woods agreement like the past, it will be done in a gradual manner.
* G20 will 'resist all forms' of protectionism and work to break down trade barriers.
My comment: China MUST continue their export of rare earths because everyone else needs it while the US can continue to discuss on their currency reform plans which would technically put tariffs on Chinese toys, textiles etc. Wow talk about double standards.
* Members will work to reduce excessive imbalances and maintain current account imbalances at 'sustainable' levels. IMF to assess the causes of persistently large imbalances.
My comment: Imbalances here mean, those countries that have a huge trade surplus against the US. Basically the best way to change this is to force these countries to import US made goods even if they are more expensive. If not "BUY USA" slogans will be placed throughout all the states in the US to instill a little patriotism into Americans and convince them not to buy goods from foreign countries. What does that mean? Internal protectionism measures.
* Members to develop 'comprehensive action plan' on the global economy for the Seoul G20 summit on Nov 11 to 12.
My comment: Follow up rest and relax retreat. Another 2 days of good relaxing holiday.
* G20 will fully implement a bank capital and liquidity framework drawn up by the Basel Committee, and endorses recommendations by the Financial Supervisory Board for tighter supervision of big financial firms.
My comment: A new spin story to create confidence in the large financial firms in the market. Guess who have the largest financial institutions in the world?
* G20 welcomes IMF's strengthening of its Flexible Credit Line and establishment of the Precautionary Credit Line to strengthen 'global financial safety nets' and pre-empt new crises.
My comment: Financial institutions will be able to take more risk because there will be safety nets in place this time.
* Working group to produce multi-year plan to promote 'inclusive and sustainable economic growth and resilience' in developing countries. -- AFP
My comment: A committee made up of mostly developed nations representatives will sit together to decide how best to hold back the growth of emerging economies so as to maintain their leadership position. Talk about a conflict of interest.
You may agree or disagree with me. Just wanted to give you two cents worth of what I think of these rubbish meetings.
Anyway, try to be a little more conservative over this coming week as jitters over possible QE2 disappointments. Take a look at the 10 year US treasury yield. It has moved from 2.4% back to 2.56%, which shows profit taking on treauries even though QE2 will focus mainly on flattening the yield curve and expanding more credit to the US consumer. So I believe this week will be similar to the last week.
Personally, I am bullish but I am still looking for attractive entry points into the market. Do not rush, opportunities will be coming. I am sure.
Have a great week ahead!
Best,
SVI
So why don't we start with what I am bullish on over the next 3 months. I will start with Energy. I believe oil prices will trend higher. I had a colleague ask me, why I was positive on the energy sector when demand is not expected to grow significantly as consumers continue to hold back their purchases in developed countries. I totally agreed with him that demand and supply is a key determinant for energy prices. But I also believe that when there is excess liquidity, the first and most obvious target for "hot money" is to look for safe bets and things that will have continuous and inelastic demand. Safe bets naturally are fixed income instruments like treasuries and bonds. They have already done well and whatever can be milked from fixed income has been squeezed out. So naturally, the money is in search of the next best thing....staples. Food, energy and other commodities that we need in our daily lives. If that is not a safe bet, I do not know what is.
Secondly, the last couple of times the US dollar index was at the 77.5 level, Nymex crude prices were at US$92 per barrel. So we have a US$10 trade up from current $81.13 level. That is more than 10% from here and energy related equities will provide a leveraged exposure for investors who are bullish on energy. Anadarko is my favorite stock in the US for energy exposure while in Asia, I really like Petrochina for their strong growth avenues. In our island country of Singapore, we have the 2 largest rig builders in the world, Keppel Corp and Sembmarine. Someone once asked me, why we would be such good rig builders when we have no oil...That is a very good question. I have no clue because I am not old enough to remember how our government decided on becoming market leaders in rig building. Amazing...but it shows, whatever Singapore decides to put their minds to do, they do it best. A little bit of patriotism on my part.
Markets were practically flat for the whole week with all focus on the G20 meeting going on during this weekend in Korea. We should all take this with a pinch of salt because G20 meetings are normally a weekend retreat for various central bank officials at a nice exotic resort. The most common topics discussed during the meetings should revolve around the quality of this year's wine crop and maybe a little on what is the latest investment opportunity. Nothing concrete ever comes out of the G20 meetings and do not expect any new surprises.
So I have decided to give you the excerpt on the meeting from AFP and add a few comments of my own. A little interpretation of the salient points from the meeting.
Main points of G20 ministers' statement
These are the key points of a statement issued Saturday by Group of 20 finance ministers and central bankers at the end of a two-day meeting in South Korea:
* Global economic recovery remains 'fragile and uneven' and downside risks remain. Advanced countries will implement 'clear, credible, ambitious and growth-friendly' consolidation plans, taking into account their own circumstances.
My comment: This sounds like a page out of the Federal Reserve's beige book report. What do they mean by "credible, ambitious and growth friendly" plus taking into account their own circumstances? The US can go ahead and devalue their currency because their situation is more dire while the rest should just let their currencies rise because they are in a better situation? I guess so.
* Members will move towards more market-determined exchange rate systems reflecting underlying economic fundamentals and 'refrain from competitive devaluation of currencies'. Advanced economies to be vigilant against excessive swings in exchange rates, to mitigate the risk of volatility in capital flows facing some emerging countries. International Monetary Fund to assess the wider systemic impact of nations' policies.
My comment: Just like what I said earlier. US can devalue while the rest cannot. But do not worry, the US will not devalue in a one off manner, instead they intend to let it devalue slowly through their little QE moves. There will no longer be any more breaking off the Bretton Woods agreement like the past, it will be done in a gradual manner.
* G20 will 'resist all forms' of protectionism and work to break down trade barriers.
My comment: China MUST continue their export of rare earths because everyone else needs it while the US can continue to discuss on their currency reform plans which would technically put tariffs on Chinese toys, textiles etc. Wow talk about double standards.
* Members will work to reduce excessive imbalances and maintain current account imbalances at 'sustainable' levels. IMF to assess the causes of persistently large imbalances.
My comment: Imbalances here mean, those countries that have a huge trade surplus against the US. Basically the best way to change this is to force these countries to import US made goods even if they are more expensive. If not "BUY USA" slogans will be placed throughout all the states in the US to instill a little patriotism into Americans and convince them not to buy goods from foreign countries. What does that mean? Internal protectionism measures.
* Members to develop 'comprehensive action plan' on the global economy for the Seoul G20 summit on Nov 11 to 12.
My comment: Follow up rest and relax retreat. Another 2 days of good relaxing holiday.
* G20 will fully implement a bank capital and liquidity framework drawn up by the Basel Committee, and endorses recommendations by the Financial Supervisory Board for tighter supervision of big financial firms.
My comment: A new spin story to create confidence in the large financial firms in the market. Guess who have the largest financial institutions in the world?
* G20 welcomes IMF's strengthening of its Flexible Credit Line and establishment of the Precautionary Credit Line to strengthen 'global financial safety nets' and pre-empt new crises.
My comment: Financial institutions will be able to take more risk because there will be safety nets in place this time.
* Working group to produce multi-year plan to promote 'inclusive and sustainable economic growth and resilience' in developing countries. -- AFP
My comment: A committee made up of mostly developed nations representatives will sit together to decide how best to hold back the growth of emerging economies so as to maintain their leadership position. Talk about a conflict of interest.
You may agree or disagree with me. Just wanted to give you two cents worth of what I think of these rubbish meetings.
Anyway, try to be a little more conservative over this coming week as jitters over possible QE2 disappointments. Take a look at the 10 year US treasury yield. It has moved from 2.4% back to 2.56%, which shows profit taking on treauries even though QE2 will focus mainly on flattening the yield curve and expanding more credit to the US consumer. So I believe this week will be similar to the last week.
Personally, I am bullish but I am still looking for attractive entry points into the market. Do not rush, opportunities will be coming. I am sure.
Have a great week ahead!
Best,
SVI
Sunday, October 17, 2010
Some useful thoughts from me. 17th Oct 2010
Another week, another dollar. This week went by so quickly that I do not have any impression of what happened. When one gets bogged down with work, time becomes like an illusion. It feels as though it does not exist. Today, I just felt like writing whatever comes to mind because I do not have time to be so structured and think of exactly what to write.
China has really been on fire since reopening after their golden week holidays. They really delivered a golden week for investors. It has rallied more than 10% within 6 days. That is one hell of a move. But is it excessive? You are going to read lots about how the chinese market is overheated and how a pullback is coming. This week, it will be testing the psychologically important level of 3,000 points. If it breaks through, we are going to have a good ride all the way for another 200 points at least. I have been privileged enough to witness the parabolic move of the Shanghai Composite in 2006-07. There is no such thing as resistance in China when the bull market gets going over there.
Tomorrow we will have the largest IPO since Singtel hit the STI back during a time before I could really appreciate the sheer size of the offering. Global Logistics Properties (GLP), this is a name that has haunted me every morning over the past week when I turn on the radio to listen to the news. I have never heard an ipo promoted to this extent. Fund managers will be rushing to buy this stock tomorrow because it will DEFINITELY be included in the FTSE STI index and for those managers that are benchmarked against the index, they will need to have a certain holding in this company.
Is it cheap? I was asked this question on Friday, while I was having drinks with a few bankers. The last thing I want to think about is stocks when I am busy having my diet coke and fighting the temptation to start drinking alcohol. This is the answer I gave them. Peter Lim bought, what do you think? They rebutted with, he wanted to buy Liverpool too, so do you really think he is really that good an investor? Haha. Ok enough about Liverpool, especially because I am a pool fan...
Well back to GLP. This is one that I have mixed feelings about. I personally never liked big floats because it takes forever to move the stock up. But I do think this is an interesting ipo because I feel the assets here are possibly undervalued because they were bought at really cheap prices in the past. Especially their Japanese assets. The part where I am not too comfortable with is the fact that it is a loss making outfit currently. My call for this stock is that it will be a good investment for the long term. I am pretty sure of that. From what I know, they initially wanted to price it at $2.30 so that would be my short term target for the stock. It may even hit it when it opens tomorrow.
For the rest of the month, we will have 3 more ipos, that is pretty impressive because that would mean 5 ipos in October. As per my previous post, I have already said, the ipo fever is on! The USD has continued to fall and the market has been on a tear. STI is at 3,204 now and from my charts, I can only see 3300 before a very meaningful pull back.
I have investment strategists telling me that the USD is going to be on a free fall all the way to $1.26 against the SGD. Now that is bad news, but I would like to point out some risks before we get ahead of ourselves. One of the books which I have read over the past year (called Animal Spirits by the great Akerlof and Shiller), did point out that we should never underestimate the power of animal spirits. There is no such thing as a one way trade, at least not one that is so overly predictable. The key risk to this is for QE2 to disappoint in November. Bernanke did say in his speech on Friday, he is definitely going to go ahead with it but the question is...how much?
There is a rumor that the Chinese and Americans have decided to come to a compromise. The Chinese will allow faster appreciation on their yuan while the US lower their quota on QE2. If this is true, we will see the USD rebound and the markets will start to correct downwards. With the strength in the markets, I am just concerned that the expectations on the quantum of QE2 are a little excessive.
One thing that gave me great confidence that QE2 will definitely be implemented was the inflation number that came out on Friday and also the jobless claims number on Thursday. It gives Bernanke more room to maneuver because the data is backing his claim on the need for QE2. But in my view, QE2 will not work because it is only going to create wealth for the rich but not the common folk. We are clearly in a liquidity trap and a more targeted approach will be needed if Bernanke does not want to throw money down the drain.
I was also asked by my favorite protege on whether the current debacle on foreclosures in the US is going to hurt the market. Well here is my answer. This is really not a big enough problem to justify the 10% drop in the larger US bank stocks. I view this as a buying opportunity for those investors who have been looking at an appropriate time to buy into US financials.
One stock that I have been a little amazed by is Apple. The stock his US$315 on Friday and cementing its place as the 2nd largest company in the world, right behind Exxon Mobil. I love Apple as a company but I am just concerned that investors have fallen too deeply in love with this stock to see that the stock price is reflecting a little too much optimism. If I am not wrong, the company now makes up more than 7.9% of the Nasdaq's market cap and that is just mind blowing. So if you are an Apple stock holder, its important to pay close attention to their earnings growth going forward. With its ability to innovate and make people fall in love with their products, it will not surprise me if it continues to move upwards, but I like to make it a point to review my holdings when large milestones are achieved.
I continue to maintain my overweight position in equities and I am very bullish on Japan. I know, you think I am mad. I think I am right. We shall see.
Ok time for me to take some time off thinking about stocks and the economy.
Have a good week ahead!
Best,
SVI
China has really been on fire since reopening after their golden week holidays. They really delivered a golden week for investors. It has rallied more than 10% within 6 days. That is one hell of a move. But is it excessive? You are going to read lots about how the chinese market is overheated and how a pullback is coming. This week, it will be testing the psychologically important level of 3,000 points. If it breaks through, we are going to have a good ride all the way for another 200 points at least. I have been privileged enough to witness the parabolic move of the Shanghai Composite in 2006-07. There is no such thing as resistance in China when the bull market gets going over there.
Tomorrow we will have the largest IPO since Singtel hit the STI back during a time before I could really appreciate the sheer size of the offering. Global Logistics Properties (GLP), this is a name that has haunted me every morning over the past week when I turn on the radio to listen to the news. I have never heard an ipo promoted to this extent. Fund managers will be rushing to buy this stock tomorrow because it will DEFINITELY be included in the FTSE STI index and for those managers that are benchmarked against the index, they will need to have a certain holding in this company.
Is it cheap? I was asked this question on Friday, while I was having drinks with a few bankers. The last thing I want to think about is stocks when I am busy having my diet coke and fighting the temptation to start drinking alcohol. This is the answer I gave them. Peter Lim bought, what do you think? They rebutted with, he wanted to buy Liverpool too, so do you really think he is really that good an investor? Haha. Ok enough about Liverpool, especially because I am a pool fan...
Well back to GLP. This is one that I have mixed feelings about. I personally never liked big floats because it takes forever to move the stock up. But I do think this is an interesting ipo because I feel the assets here are possibly undervalued because they were bought at really cheap prices in the past. Especially their Japanese assets. The part where I am not too comfortable with is the fact that it is a loss making outfit currently. My call for this stock is that it will be a good investment for the long term. I am pretty sure of that. From what I know, they initially wanted to price it at $2.30 so that would be my short term target for the stock. It may even hit it when it opens tomorrow.
For the rest of the month, we will have 3 more ipos, that is pretty impressive because that would mean 5 ipos in October. As per my previous post, I have already said, the ipo fever is on! The USD has continued to fall and the market has been on a tear. STI is at 3,204 now and from my charts, I can only see 3300 before a very meaningful pull back.
I have investment strategists telling me that the USD is going to be on a free fall all the way to $1.26 against the SGD. Now that is bad news, but I would like to point out some risks before we get ahead of ourselves. One of the books which I have read over the past year (called Animal Spirits by the great Akerlof and Shiller), did point out that we should never underestimate the power of animal spirits. There is no such thing as a one way trade, at least not one that is so overly predictable. The key risk to this is for QE2 to disappoint in November. Bernanke did say in his speech on Friday, he is definitely going to go ahead with it but the question is...how much?
There is a rumor that the Chinese and Americans have decided to come to a compromise. The Chinese will allow faster appreciation on their yuan while the US lower their quota on QE2. If this is true, we will see the USD rebound and the markets will start to correct downwards. With the strength in the markets, I am just concerned that the expectations on the quantum of QE2 are a little excessive.
One thing that gave me great confidence that QE2 will definitely be implemented was the inflation number that came out on Friday and also the jobless claims number on Thursday. It gives Bernanke more room to maneuver because the data is backing his claim on the need for QE2. But in my view, QE2 will not work because it is only going to create wealth for the rich but not the common folk. We are clearly in a liquidity trap and a more targeted approach will be needed if Bernanke does not want to throw money down the drain.
I was also asked by my favorite protege on whether the current debacle on foreclosures in the US is going to hurt the market. Well here is my answer. This is really not a big enough problem to justify the 10% drop in the larger US bank stocks. I view this as a buying opportunity for those investors who have been looking at an appropriate time to buy into US financials.
One stock that I have been a little amazed by is Apple. The stock his US$315 on Friday and cementing its place as the 2nd largest company in the world, right behind Exxon Mobil. I love Apple as a company but I am just concerned that investors have fallen too deeply in love with this stock to see that the stock price is reflecting a little too much optimism. If I am not wrong, the company now makes up more than 7.9% of the Nasdaq's market cap and that is just mind blowing. So if you are an Apple stock holder, its important to pay close attention to their earnings growth going forward. With its ability to innovate and make people fall in love with their products, it will not surprise me if it continues to move upwards, but I like to make it a point to review my holdings when large milestones are achieved.
I continue to maintain my overweight position in equities and I am very bullish on Japan. I know, you think I am mad. I think I am right. We shall see.
Ok time for me to take some time off thinking about stocks and the economy.
Have a good week ahead!
Best,
SVI
Saturday, October 9, 2010
Grab onto whatever has real value. Currency depreciation on the way.
What a week. Work and work. Honestly, I really wonder how much longer I can keep it up writing this blog. If I continue thinking of the market even during my off days, I will probably forget the rest of my life. Would like to get a new toy to distract myself however my mind is a blank when it comes to thinking of things to buy for entertainment. If anyone out there that has a good idea of what to buy, feel free to drop me a message.
So we did rally one more week didn't we? Most of the world is looking for a meaningful correction in the equity markets after a great September. Well I guess it is not here yet. Remember what I said last week? USD is still weak, market is still strong. Investors are now looking forward to QE2 that is why it is being discounted in the market. A further catalyst was the CME (comprehensive monetary easing) introduced by the Bank of Japan. The Japanese showed how desperate they were in jumping ahead of the Fed and went ahead to cut interest rates and expand their balance sheet through the outright purchase of debt. The race is on! Developed countries are going to go on a currency race to see who can depreciate the fastest. It is not wonder that gold has rallied to new all time highs.
Expectations of investors now are on the Fed going ahead with the their plans for quantitative easing part 2. That is why the markets have done so well over the past month and risky assets have all rallied. When I mean rally, I mean up more than 10% over a month! Some experts out there are warning on the fact that risky assets have rallied, the Fed may hesitate in implementing QE2. I would like to point out that these so call experts are very wrong in their argument because the Fed's reason for considering QE2 is to fight off deflation and to boost the slowing growth, not to boost asset markets. Therefore, I am sure they will implement some form of QE, especially after Japan went ahead to do it first.
There is no doubt that the rally we are witnessing is currently liquidity driven more than fundamentally. The problem here is, liquidity can disappear anytime (not that I think it is going to disappear anytime soon), fundamentals last. Enjoy the rally while it continues, asset prices will continue to inflate as currencies continue to depreciate. It is worrying because the very money which we hold in our wallets are losing value and confidence is starting to wane.
The Fed has indicated their intentions, the BOJ has moved and the ECB remains quiet. The poor Europeans, their Euro is going to be the strongest currency amongst all the developed economies currencies. Expect more news to come out of Europe going forward. Spin doctors are going to go ahead and push out stories about how one of their peripheral members may default. Trust me, everyone wants a weak currency now. What we have here is a implicit currency war. This is causing gold to go ballistic, this will slowly be followed by other real assets like commodities. That is why, the smart money better go for the commodity producers and also long all commodities with the exception of natural gas. When people lose confidence in currencies, they will park their monies in assets that are staples or will maintain its value. We are not going back to the days of barter trade but investors are going to view commodities as the best way to maintain their value of money.
In the mean time, we are really looking at a bullish market. How do I know that? First, the market is interpreting all the bad news in the market as a positive. Why? Thats because if the news is bad, there is a better chance of QE2. Take for example, the worse than expected non farm payrolls number led to a positive move in the US markets, crossing the important 11k. This could continue all the way till November when the Fed meets again and makes the decision to go ahead. The mid term elections are also on the cards, throw in the start of a very interesting earnings season. I believe we will not be seeing a stellar 3Q earnings season because expectations have been raised and the low base effect experienced last year will not be relevant this year. We will see a little volatility during this earnings season but we will continue to see the market continue to trend upwards.
So lets get back to our local market where the STI have come close to the 3200 points. The underlying market is extremely strong. How do I know that?
1) IPOs are coming back.
Yamada green resources, Global Logistics, Mapletree Industries, Oxley, etc are all coming into the market because of the positive sentiment.
2) More privatisation moves are in the works.
3) Placements are coming fast and furious.
Companies doing share placements are doing so well. Lorenzo doubled after announcing their share placement. HLN and Sino Grandness both did well after they announced their plans to raise money. Expect many more to come. The bull market is a good opportunity for companies to raise money at a good stock price.
4) IPOs have strong debuts. Yamada was a good example last week.
IPO price of $0.22 and opening at $0.36! Hitting a high of $0.41 and closing at $0.37. Yamada had a fantastic debut! Mushrooms....they are the hot thing now.
In order to close off this post, I just want to point out the stocks I like going forward in the short term. Noble ($2.01), Straits Asia ($2.32), Olam if it falls to $3.06, NOL ($2.07). These are all my short term trades and not fundamental picks.
Ok have a good week ahead.
Best,
SVI
So we did rally one more week didn't we? Most of the world is looking for a meaningful correction in the equity markets after a great September. Well I guess it is not here yet. Remember what I said last week? USD is still weak, market is still strong. Investors are now looking forward to QE2 that is why it is being discounted in the market. A further catalyst was the CME (comprehensive monetary easing) introduced by the Bank of Japan. The Japanese showed how desperate they were in jumping ahead of the Fed and went ahead to cut interest rates and expand their balance sheet through the outright purchase of debt. The race is on! Developed countries are going to go on a currency race to see who can depreciate the fastest. It is not wonder that gold has rallied to new all time highs.
Expectations of investors now are on the Fed going ahead with the their plans for quantitative easing part 2. That is why the markets have done so well over the past month and risky assets have all rallied. When I mean rally, I mean up more than 10% over a month! Some experts out there are warning on the fact that risky assets have rallied, the Fed may hesitate in implementing QE2. I would like to point out that these so call experts are very wrong in their argument because the Fed's reason for considering QE2 is to fight off deflation and to boost the slowing growth, not to boost asset markets. Therefore, I am sure they will implement some form of QE, especially after Japan went ahead to do it first.
There is no doubt that the rally we are witnessing is currently liquidity driven more than fundamentally. The problem here is, liquidity can disappear anytime (not that I think it is going to disappear anytime soon), fundamentals last. Enjoy the rally while it continues, asset prices will continue to inflate as currencies continue to depreciate. It is worrying because the very money which we hold in our wallets are losing value and confidence is starting to wane.
The Fed has indicated their intentions, the BOJ has moved and the ECB remains quiet. The poor Europeans, their Euro is going to be the strongest currency amongst all the developed economies currencies. Expect more news to come out of Europe going forward. Spin doctors are going to go ahead and push out stories about how one of their peripheral members may default. Trust me, everyone wants a weak currency now. What we have here is a implicit currency war. This is causing gold to go ballistic, this will slowly be followed by other real assets like commodities. That is why, the smart money better go for the commodity producers and also long all commodities with the exception of natural gas. When people lose confidence in currencies, they will park their monies in assets that are staples or will maintain its value. We are not going back to the days of barter trade but investors are going to view commodities as the best way to maintain their value of money.
In the mean time, we are really looking at a bullish market. How do I know that? First, the market is interpreting all the bad news in the market as a positive. Why? Thats because if the news is bad, there is a better chance of QE2. Take for example, the worse than expected non farm payrolls number led to a positive move in the US markets, crossing the important 11k. This could continue all the way till November when the Fed meets again and makes the decision to go ahead. The mid term elections are also on the cards, throw in the start of a very interesting earnings season. I believe we will not be seeing a stellar 3Q earnings season because expectations have been raised and the low base effect experienced last year will not be relevant this year. We will see a little volatility during this earnings season but we will continue to see the market continue to trend upwards.
So lets get back to our local market where the STI have come close to the 3200 points. The underlying market is extremely strong. How do I know that?
1) IPOs are coming back.
Yamada green resources, Global Logistics, Mapletree Industries, Oxley, etc are all coming into the market because of the positive sentiment.
2) More privatisation moves are in the works.
3) Placements are coming fast and furious.
Companies doing share placements are doing so well. Lorenzo doubled after announcing their share placement. HLN and Sino Grandness both did well after they announced their plans to raise money. Expect many more to come. The bull market is a good opportunity for companies to raise money at a good stock price.
4) IPOs have strong debuts. Yamada was a good example last week.
IPO price of $0.22 and opening at $0.36! Hitting a high of $0.41 and closing at $0.37. Yamada had a fantastic debut! Mushrooms....they are the hot thing now.
In order to close off this post, I just want to point out the stocks I like going forward in the short term. Noble ($2.01), Straits Asia ($2.32), Olam if it falls to $3.06, NOL ($2.07). These are all my short term trades and not fundamental picks.
Ok have a good week ahead.
Best,
SVI
Saturday, October 2, 2010
Centraland a Chinese developer for the future. Strong buy at $0.45 but be patient with it
After saying bye to the best September showing in more than 71 years, what is next? One really has to wonder what has caused the market to have such a performance within a month. The 3rd quarter of 2010 has come to an end with a bang, bringing markets back to their highs of the year, in the case of the US markets, close to their highs. Cheer has come back to the market and once again I have been getting smses from close friends on what should they buy to participate in this market. I have never been a really good trader while I still have faith in my stock picking skills. Did anyone see GP Batteries over the past week? Pardon my cockyness.
A good friend of mine told me about how he went out to buy some US dollars in preparation of his trip to the US next year. He felt that the $1.32 rate was so attractive that he could not stop himself from going to the ATM to draw some cash and converted it to USD. Part of me wanted to tell him he was wrong, part of me just let it go. The USD has had a good rebound earlier this year before resuming its inevitable drop over the past month. What does this tell us? A technical rebound can last months at times, but the long term trend will prevail in the end. The long term down trend for the USD is securely intact with our favourite US govt looking to implicitly devalue their money through their printing presses.
Currency is something that has always been fascinating to me but I am no expert in this. However as a trained economist, I can say that common sense is telling me that depreciation or devaluation of the USD is not going to help much. Also labelling the Chinese as currency manipulators is not going to change anything. Jobs are not going to come back because the cost of Chinese labor is still at least 80% cheaper than US labor. Competitive depreciation of currency by all the developed countries will not change the economic background because if everyone is doing the same thing the change will be absolutely nothing. My suspicion on the Europeans exaggerating their sovereign debt crisis to devalue the Euro is still valid. Now the US are also pushing their USD down with their claims of possible quantitative easing. Guess who is left behind? The poor Japanese who are unable to intervene in their Yen markets like the past because they no longer have the financial clout to do so. No matter how much Yen is sold into the market, it is easily absorbed by the ferocious buying of the Chinese.
Why would anyone be buying Japanese Yen when the Japanese Govt Bonds (JGBs) are yielding 0.965% for their 10 year issues? Shouldn't the close to 2.7% of the 10 year US treasuries be more appetitizing? Think about it. Common sense right? Wrong. The the Japanese deflation is running at 1% this year, thus the real yield is 1.965% while the US core CPI stands at 0.9% YOY thus the real rate is? 1.8%. Throw in the overworked printing presses of the US federal reserve, the consumer expectations are for inflation to pick up to 1.2% going into 2011 (I think this is conservative), the real yield on the US treasury is going to fall further.
With all this implicit devaluation, gold has reached another high once again with investors looking for a safe store of value. However investing in gold for Singaporeans have not given them the kind of returns they would have hoped for because of the appreciation of the SGD while gold is being priced in USD. The exchange loss takes a serious haircut off the Singaporean gold investor.
Another interesting development I over the past week is the rise of the oil price, both Nymex and Brent breaking above the $80 dollar mark. This bodes well for the oil related counters plus the alternative energy players. Remember, alternative energy is only feasible if the oil price remains above $60 or so. The higher it goes, the more interest there will be on alternatives. Oil plays have taken a back seat throughout this market rally, this could change should oil continue to show strength.
For stock specific news, I can only say the one announcement that really caught my attention was the investment of Warburg Pincus into 2 of Centraland's projects. I have been watching this counter for the longest time and it has a valuation that will shock most people. Trading at a whopping 400 p/e and 2 times book value. However, the company is really a work in progress. Although in its prospectus, it described itself as a residential and commercial property developer. But over the past 2 years since its IPO in 2008, the stock has become a specialised commercial property developer. It is one of the leading developers in Zhengzhou with a specialisation towards trading hubs. Basically these trading hubs are clusters where wholesalers are located and most retailers look for suppliers there. I personally like this niche as this will give them a more stable income through rental space and also strong demand for their saleable space.
I believe this is what Warburg Pincus has seen in this niche developer to be so willing to invest RMB650 million into the 2 JVs with Centraland and they have indicated the possibility of injecting their own assets in Tianjin and Beijing into the JVs. Also Warburg Pincus will have the option to double up their investment by injecting another RMB650 million within the next 30 months after the first investment is made. This is a lot of money and it will also allow Centraland to ensure that their projects will be completed on time and without any problems with the funding. A strong partner like Warburg Pincus is a testament to the Centraland management and capability. After 3 years, Warburg Pincous has indicated their intention to IPO the JVs and that will deliver further value to all shareholders. I know 3 years is a long time, but I really do think it may be worth the wait.
This is definitely not a company for the present but I do believe it is one for the future. You have to see how far the company has come over the past 2 years. They have secured more trading hub projects and most of them are mega projects that are more than 200,000 square feet of gross floor area. Their landbank is huge with more than 1.5 million square feet of GFA still waiting to be developed. This is going to be a property giant. The current market cap is more than $800 million and is still trading lower than its IPO price of $0.50. Open float is super low at 13.3% and the shares are closely held. So good luck in trying to get a substantial holding on this beauty.
I know this is a long term play but I believe a good investor should have the vision to see the value of this company. So do take a look into this one.
I would have liked to write more but work has been hell and my life is becoming as boring as a librarian's. So have a good week ahead and lets hope the markets continue to hold up as well as it has.
Best,
SVI
A good friend of mine told me about how he went out to buy some US dollars in preparation of his trip to the US next year. He felt that the $1.32 rate was so attractive that he could not stop himself from going to the ATM to draw some cash and converted it to USD. Part of me wanted to tell him he was wrong, part of me just let it go. The USD has had a good rebound earlier this year before resuming its inevitable drop over the past month. What does this tell us? A technical rebound can last months at times, but the long term trend will prevail in the end. The long term down trend for the USD is securely intact with our favourite US govt looking to implicitly devalue their money through their printing presses.
Currency is something that has always been fascinating to me but I am no expert in this. However as a trained economist, I can say that common sense is telling me that depreciation or devaluation of the USD is not going to help much. Also labelling the Chinese as currency manipulators is not going to change anything. Jobs are not going to come back because the cost of Chinese labor is still at least 80% cheaper than US labor. Competitive depreciation of currency by all the developed countries will not change the economic background because if everyone is doing the same thing the change will be absolutely nothing. My suspicion on the Europeans exaggerating their sovereign debt crisis to devalue the Euro is still valid. Now the US are also pushing their USD down with their claims of possible quantitative easing. Guess who is left behind? The poor Japanese who are unable to intervene in their Yen markets like the past because they no longer have the financial clout to do so. No matter how much Yen is sold into the market, it is easily absorbed by the ferocious buying of the Chinese.
Why would anyone be buying Japanese Yen when the Japanese Govt Bonds (JGBs) are yielding 0.965% for their 10 year issues? Shouldn't the close to 2.7% of the 10 year US treasuries be more appetitizing? Think about it. Common sense right? Wrong. The the Japanese deflation is running at 1% this year, thus the real yield is 1.965% while the US core CPI stands at 0.9% YOY thus the real rate is? 1.8%. Throw in the overworked printing presses of the US federal reserve, the consumer expectations are for inflation to pick up to 1.2% going into 2011 (I think this is conservative), the real yield on the US treasury is going to fall further.
With all this implicit devaluation, gold has reached another high once again with investors looking for a safe store of value. However investing in gold for Singaporeans have not given them the kind of returns they would have hoped for because of the appreciation of the SGD while gold is being priced in USD. The exchange loss takes a serious haircut off the Singaporean gold investor.
Another interesting development I over the past week is the rise of the oil price, both Nymex and Brent breaking above the $80 dollar mark. This bodes well for the oil related counters plus the alternative energy players. Remember, alternative energy is only feasible if the oil price remains above $60 or so. The higher it goes, the more interest there will be on alternatives. Oil plays have taken a back seat throughout this market rally, this could change should oil continue to show strength.
For stock specific news, I can only say the one announcement that really caught my attention was the investment of Warburg Pincus into 2 of Centraland's projects. I have been watching this counter for the longest time and it has a valuation that will shock most people. Trading at a whopping 400 p/e and 2 times book value. However, the company is really a work in progress. Although in its prospectus, it described itself as a residential and commercial property developer. But over the past 2 years since its IPO in 2008, the stock has become a specialised commercial property developer. It is one of the leading developers in Zhengzhou with a specialisation towards trading hubs. Basically these trading hubs are clusters where wholesalers are located and most retailers look for suppliers there. I personally like this niche as this will give them a more stable income through rental space and also strong demand for their saleable space.
I believe this is what Warburg Pincus has seen in this niche developer to be so willing to invest RMB650 million into the 2 JVs with Centraland and they have indicated the possibility of injecting their own assets in Tianjin and Beijing into the JVs. Also Warburg Pincus will have the option to double up their investment by injecting another RMB650 million within the next 30 months after the first investment is made. This is a lot of money and it will also allow Centraland to ensure that their projects will be completed on time and without any problems with the funding. A strong partner like Warburg Pincus is a testament to the Centraland management and capability. After 3 years, Warburg Pincous has indicated their intention to IPO the JVs and that will deliver further value to all shareholders. I know 3 years is a long time, but I really do think it may be worth the wait.
This is definitely not a company for the present but I do believe it is one for the future. You have to see how far the company has come over the past 2 years. They have secured more trading hub projects and most of them are mega projects that are more than 200,000 square feet of gross floor area. Their landbank is huge with more than 1.5 million square feet of GFA still waiting to be developed. This is going to be a property giant. The current market cap is more than $800 million and is still trading lower than its IPO price of $0.50. Open float is super low at 13.3% and the shares are closely held. So good luck in trying to get a substantial holding on this beauty.
I know this is a long term play but I believe a good investor should have the vision to see the value of this company. So do take a look into this one.
I would have liked to write more but work has been hell and my life is becoming as boring as a librarian's. So have a good week ahead and lets hope the markets continue to hold up as well as it has.
Best,
SVI
Sunday, September 26, 2010
Fed is the stock market's new best friend
It is F1 weekend once again. As the third F1 race in Singapore currently gets underway, i sit here reminiscing on my free flow red wine and champagne on the sky suite overlooking the pit during qualifying yesterday. Don't get me wrong, it is not that I desire this kind of life style. It just gives me an even clearer feeling of the 2 tier society which we live in. While people are queuing to buy their $100 souvenirs at the Ferrari booths at each gate, there are people who are only able to afford a $3 plate of chicken rice for themselves and their children. What a wonderful world we live in.
While I was sitting at a table at the Nassim suites last night having dinner, I was totally not paying attention the the F1 practices, Ferrari drive bys and F1 qualifying. I was instead having a good conversation with the CIO of a hedge fund company, discussing our views on the market. The good news is, both of us are in the view that the equity markets are going to go higher while bonds are getting increasingly expensive and irrational.
Funny thing was his view on gold. He said that the investors in gold were placing the wrong bets because there is absolutely no inflation in the market. I could not say I agreed with him. After all he is from Europe and deflation is the key concern over there while we just saw our latest CPI reading come in at 3.3%. But he did say that I was right that the European fears of peripheral defaults were way over blown. (Told you all so). Looks like SVI is right again on the market.
It has been a good week, especially for the smaller cap stocks. A few interesting rumors, especially with Olam being a possible target for the great Loui Dreyfus. Funny isn't it. Olam being one of the companies which I have placed on my "avoid" list of stocks, it came as a shock to me when such an established commodities trading company would show interest in it.
SIA also did something rather interesting, raising money through their bond issue, offering investors a whopping 2.15% coupon for the next 5 years. If our inflation expectations in Singapore is 2-3%, investors are going to be short changed. But guess what? Irrationality is the order of the day. Bonds are just the in thing. IBM and Microsoft are also issuing bonds offering ultra low yields and using the proceeds to buy back their shares. I wonder what a person who has common sense would think of such a move. Bonds are overvalued and Equities are cheap? What do you think?
I have decided to dwell on the FOMC meeting last Tuesday in today's post. The market initially did not know what to interpret from the meeting, with the market dropping slightly for 3 days in a row and after which Friday turned into the inflection point for the market.
Further rally appears likely as the Fed has put a floor under markets, which in turn anticipate another liquidity-fed rally like that of 2009 that may continue despite stagnant fundamentals as cash seeking a home flows in to equities. The implied further debasement of the USD feeds the demand for hard assets, particularly traditional currency hedges like gold and silver. Crude oil also broke through multi-week resistance despite the highest ever recorded US inventories. Such was the effect of the FOMC’s implication of new QE in the coming months. This same implied future devaluation of the USD, which is part of over 80% of all forex trading volume, drove the USD index to its lowest level in months, with predictable results. The USD was the week’s weakest currency while the EUR was the strongest, despite news of deteriorating PIIGS bond prices and EU growth which together at other times could have put the EUR at the bottom of the weekly forex pile.
The USD weakness is coming from the worries that the Fed will implement more quantitative easing going forward. In their statement, the Fed stated that inflation was still below the levels which they felt would interfere with price stability. Going forward in the next few months, I expect inflation to pick up slightly due to the current USD weakness, importing inflation from the likes of Japan and China. The next time the Fed meets will be in Nov and by then, things could be a little different. However, Obama faces a big challenge come mid-term elections, should he lose seats in the congress, he will be pressurized to introduce even more stimulus measures. I am still leaning towards further measures being introduced and this is one of the main reasons to my bullishness. As long as USD continues to be weak, expect the market to remain strong.
Personally, I like what I see in the markets, even though the indices look a little over bought and slight weakness may be seen in Oct but the trend is still firmly on the positive side. So do make sure you accumulate during the next dip. Got a little cold today so will keep it a little short. I promise, I will have a stock pick for next week because I have been doing a little background studies on some interesting companies.
Ironically, my top pick Sarin has not moved at all, however it is important for us to be patient because true value normally shines through. It is almost impossible to time the market, but it is possible to find good companies and sit on them till the market realises their value.
Ok I am getting a little sleepy now, will try to write more when my head gets clearer.
Have a good week ahead.
Best,
SVI
While I was sitting at a table at the Nassim suites last night having dinner, I was totally not paying attention the the F1 practices, Ferrari drive bys and F1 qualifying. I was instead having a good conversation with the CIO of a hedge fund company, discussing our views on the market. The good news is, both of us are in the view that the equity markets are going to go higher while bonds are getting increasingly expensive and irrational.
Funny thing was his view on gold. He said that the investors in gold were placing the wrong bets because there is absolutely no inflation in the market. I could not say I agreed with him. After all he is from Europe and deflation is the key concern over there while we just saw our latest CPI reading come in at 3.3%. But he did say that I was right that the European fears of peripheral defaults were way over blown. (Told you all so). Looks like SVI is right again on the market.
It has been a good week, especially for the smaller cap stocks. A few interesting rumors, especially with Olam being a possible target for the great Loui Dreyfus. Funny isn't it. Olam being one of the companies which I have placed on my "avoid" list of stocks, it came as a shock to me when such an established commodities trading company would show interest in it.
SIA also did something rather interesting, raising money through their bond issue, offering investors a whopping 2.15% coupon for the next 5 years. If our inflation expectations in Singapore is 2-3%, investors are going to be short changed. But guess what? Irrationality is the order of the day. Bonds are just the in thing. IBM and Microsoft are also issuing bonds offering ultra low yields and using the proceeds to buy back their shares. I wonder what a person who has common sense would think of such a move. Bonds are overvalued and Equities are cheap? What do you think?
I have decided to dwell on the FOMC meeting last Tuesday in today's post. The market initially did not know what to interpret from the meeting, with the market dropping slightly for 3 days in a row and after which Friday turned into the inflection point for the market.
Further rally appears likely as the Fed has put a floor under markets, which in turn anticipate another liquidity-fed rally like that of 2009 that may continue despite stagnant fundamentals as cash seeking a home flows in to equities. The implied further debasement of the USD feeds the demand for hard assets, particularly traditional currency hedges like gold and silver. Crude oil also broke through multi-week resistance despite the highest ever recorded US inventories. Such was the effect of the FOMC’s implication of new QE in the coming months. This same implied future devaluation of the USD, which is part of over 80% of all forex trading volume, drove the USD index to its lowest level in months, with predictable results. The USD was the week’s weakest currency while the EUR was the strongest, despite news of deteriorating PIIGS bond prices and EU growth which together at other times could have put the EUR at the bottom of the weekly forex pile.
The USD weakness is coming from the worries that the Fed will implement more quantitative easing going forward. In their statement, the Fed stated that inflation was still below the levels which they felt would interfere with price stability. Going forward in the next few months, I expect inflation to pick up slightly due to the current USD weakness, importing inflation from the likes of Japan and China. The next time the Fed meets will be in Nov and by then, things could be a little different. However, Obama faces a big challenge come mid-term elections, should he lose seats in the congress, he will be pressurized to introduce even more stimulus measures. I am still leaning towards further measures being introduced and this is one of the main reasons to my bullishness. As long as USD continues to be weak, expect the market to remain strong.
Personally, I like what I see in the markets, even though the indices look a little over bought and slight weakness may be seen in Oct but the trend is still firmly on the positive side. So do make sure you accumulate during the next dip. Got a little cold today so will keep it a little short. I promise, I will have a stock pick for next week because I have been doing a little background studies on some interesting companies.
Ironically, my top pick Sarin has not moved at all, however it is important for us to be patient because true value normally shines through. It is almost impossible to time the market, but it is possible to find good companies and sit on them till the market realises their value.
Ok I am getting a little sleepy now, will try to write more when my head gets clearer.
Have a good week ahead.
Best,
SVI
Saturday, September 18, 2010
I cannot stand children but I sure love the business of delivering them. Thomson Medical ($1.01)
The other day, I was sitting alone thinking about how my portfolio has been doing this year and I realised that it has gone absolutely nowhere. By nowhere I mean outperforming the major indices but very little alpha can be found. I am very disappointed in my own performance and it is not possible for me to find any excuses for myself. A classmate of mine who started his own fund management company has logged in gains in excess of 20% while I am stuck at only 12% is making me feel rather envious and also disappointed. To think I never thought much of him when we were young, but talk about late bloomers.
Even though I am once again right that the market would continue moving up while the rest of my colleagues continued their bearishness on equities. I like that because it gives me the reassurance that even the supposed "experts" were skeptical, that means the market is no where close to being bubblish. Slowly but surely some of the deep value stocks are starting to move up.
The likes of Innotek, Sarin, Bright World etc are looking as if activity has picked up. While Genting continues to be on the tear. Genting Berhad has moved to $10 in a matter of 2 weeks, Genting Singapore has gone past my target price and Genting Hong Kong has doubled. Basically, anything that bears the name Genting has appreciated to levels that have not been seen before. I dare anyone who has the guts to go short on these counters at this moment. It would take a very brave man to do so.
Last week, I took a hiatus because I just could not find the time to do any research whatsoever and felt inadequate to comment on anything. I believe going forward when I start my studying, it will be difficult for me to find any time to write. So lets make some hay while the sun shines.
Lets go more in-depth today on what I think is a good industry for shareholders and not for its customers, healthcare. All market experts point to healthcare as the defensive industry to be in. Demand is inelastic, earnings and dividend yields are consistent. Many health care stocks have done well in Singapore over the past year, with Parkway being the highest profiled healthcare company to be involved in an acquisition tussle. Trading at close to 30 times p/e, the price being paid for Parkway is one that seems a little excessive and optimistic at the same time. No doubt, the winner Khazahnah came out owning the numero uno of healthcare companies in Asia and its growth prospects are very promising.
Personally, I like healthcare very much. Why? Firstly, it is not a demand driven business. It is driven by supply. You must be wondering whether I have woken up on the wrong side of bed after a late night of drinks. My question to anyone is, when was the last time you told the doctor what medicine and the amount you needed. The last time I checked, the doctor is the one that tells you how much you need and what you should to take. There are not many of us out there that questions whether the doctors give us unnecessarily expensive medicine or prescribe treatments that are not effective. So doesn't the supplier drive the demand in this case? It is like printing money. I need to clarify here that this is by no means an attack on the morality of the healthcare system, I am just saying that this is a good industry in terms of demand and supply dynamics.
Macro drivers
The number of foreign patients coming to Singapore seeking healthcare services reached 500k last year, that was the highest ever. Although we all know that the govt's target of 1 million foreign patient arrivals by 2012 will not be met but it will probably be achieved by 2015.
Another macro driver for the sector's growth will be population growth. Our population has grown by 120k per year since 2000, driven mainly by "foreign" talents. This will mean demand will only continue growing.
When I was looking across the board for attractive healthcare providers to invest in, one in particular appeared on my screen. It captured my attention because it is one that I seriously doubt I will ever be a patron of the place. *touch wood* This is none other than Thomson Medical. Personally, I am dead against having kids (the worse possible investment a human being can ever have) which I know is one of the more controversial ideas that I have. But that is not the topic of our post today.
I love the idea of others having kids because at least I know that there are people out there who are willing to take up the burden and liability which will be a great comfort for our govt. I will never forget a couple of National Day Rallies ago, where our very own beloved PM Lee gave a speech about how Singaporeans are not having enough kids and that the replacement ratio of couples in Singapore is way below international standards at 1.22 kids per couple. That is worrying. Not that I really care.
With such a low replacement ratio, it is not a surprise that Thomson Medical whose key expertise in women and children, has not been trading at the average price multiples (20-25) for healthcare companies in Singapore. Its growth prospects are truly not as rosy as the other healthcare providers considering so many Singaporeans are not looking to have kids.
Background
Thomson Medical Centre (TMC) is a leading private women and children’s hospital in Singapore. It provides a comprehensive range of facilities and services for primary, secondary and tertiary healthcare, with focus in the areas of Obstetrics and Gynaecology (O&G) and paediatric services.
The 190-bed Thomson Medical Centre along Thomson Road has been in operation since 1979 and offers quality healthcare by a team of highly experienced O&G specialists and pediatricians. It also operates Thomson Fertility Centre, which offers In-Vitro Fertilisation (IVF) programmes to aspiring parents, as well as a chain of seven Thomson Women’s Clinics island-wide. Other subsidiary companies include Thomson Pre-Natal Diagnostic Laboratory, Thomson Aesthetics Centre and Thomson International Health Services.
TMC has also made significant strides with its regional aspirations. Its hospital consultancy project, the 260-bed Hanh Phuc International Women & Children Hospital in Binh Duong Province is scheduled for completion in Q3 2009. In September 2008, the Group secured a second hospital consultancy project in Vietnam -- a proposed private women and children hospital to be sited in Hanoi.
The Group transferred its listing to the Mainboard in December 2007. In recognition of TMC’s best practices in corporate transparency, the Group enjoyed a three-time win in the Most Transparent Company Award category of the SIAS Investors’ Choice Awards from 2006-2008.
For winning the Singapore Promising Brand Award (SPBA) three years in a row, and in recognition of our brand, we were conferred both the prestigious SPBA Silver Award and the SPBA Distinctive Award in 2006.
In 2007, Thomson Medical Centre won the Singapore Prestige Brand Award and was the overall winner of the “Most Established Brand” category. These awards, jointly organized by the Association of Small & Medium Enterprises and Lianhe Zaobao, are indeed testimony to the strong brand performance of Thomson Medical Centre.
With a sterling brand name, dedicated doctors and nurses, and highly personalised service, TMC is poised to continue to be the market leader for woman and child care.
Valuations
TMC has been able to grow their revenues very consistently throughout their time as a listed company. Revenues have grown at a CAGR of 13.3% which is very impressive considering the fact that they are operating in a country with one of the lowest birth rates globally.
Gross margins have hovered at 40 odd percent over the past 5 years. That is something that I love about it. Net margins stand at the late teens. Profit after tax has also grown by more than 20% over the past 5 years. This is by no means a company that has no growth in its business. Look for further growth in its revenue and profitability as their Vietnam operations start.
The company has also indicated that they are looking for further expansion regionally. This bodes well because TMC is very established specialist in their field and their segmentation gives them a unique positioning against their competitors. This is the competitive edge that investors should look for in any company before investing.
Operating cash flow has been very consistent and also growing at the same time. Net cash position on its balance sheet, giving it a strong balance sheet that is ready for further growth opportunities.
In terms of dividends, TMC is paying out more than 50% of their earnings per year. With earnings of 2.43 cents for the first half, it is possible for TMC to generate more than 5 cents in earnings which will translate to a dividend payout of 2.5 cents or more. I fully expect the dividends to rise by 10% or more per year over the next 5 years barring any crisis or need for capital for further expansion.
At this point in time, I do think that the momentum has been strong behind the stock and I would not recommend the point of entry to be at this price. Allow for a pull back before venturing into it. It is one for the longer term and very suitable for investors looking for a combination of consistent dividends and capital growth. Do not expect it to move like a growth stock but it will be a good core stock to have in your portfolio. My target for this stock is $1.20 by mid 2011 based on 20 times 2011 earnings and $1.45 by end 2011.
Anyway, I wanted to write something on Biosensors but DBS has already issued a detailed report on it. That will be a much more speculative play. I remember an analyst told me 5 years ago that Biosensors was going to be a acquisition target and I told him it was too early to tell. However, now I feel it is a lot more likely to be an acquisition target because it has started to reap rewards from its technological edge in drug eluting stents. Keep it on your radar, there is money to be made on a trading basis.
Thats all for this week.
Best,
SVI
Even though I am once again right that the market would continue moving up while the rest of my colleagues continued their bearishness on equities. I like that because it gives me the reassurance that even the supposed "experts" were skeptical, that means the market is no where close to being bubblish. Slowly but surely some of the deep value stocks are starting to move up.
The likes of Innotek, Sarin, Bright World etc are looking as if activity has picked up. While Genting continues to be on the tear. Genting Berhad has moved to $10 in a matter of 2 weeks, Genting Singapore has gone past my target price and Genting Hong Kong has doubled. Basically, anything that bears the name Genting has appreciated to levels that have not been seen before. I dare anyone who has the guts to go short on these counters at this moment. It would take a very brave man to do so.
Last week, I took a hiatus because I just could not find the time to do any research whatsoever and felt inadequate to comment on anything. I believe going forward when I start my studying, it will be difficult for me to find any time to write. So lets make some hay while the sun shines.
Lets go more in-depth today on what I think is a good industry for shareholders and not for its customers, healthcare. All market experts point to healthcare as the defensive industry to be in. Demand is inelastic, earnings and dividend yields are consistent. Many health care stocks have done well in Singapore over the past year, with Parkway being the highest profiled healthcare company to be involved in an acquisition tussle. Trading at close to 30 times p/e, the price being paid for Parkway is one that seems a little excessive and optimistic at the same time. No doubt, the winner Khazahnah came out owning the numero uno of healthcare companies in Asia and its growth prospects are very promising.
Personally, I like healthcare very much. Why? Firstly, it is not a demand driven business. It is driven by supply. You must be wondering whether I have woken up on the wrong side of bed after a late night of drinks. My question to anyone is, when was the last time you told the doctor what medicine and the amount you needed. The last time I checked, the doctor is the one that tells you how much you need and what you should to take. There are not many of us out there that questions whether the doctors give us unnecessarily expensive medicine or prescribe treatments that are not effective. So doesn't the supplier drive the demand in this case? It is like printing money. I need to clarify here that this is by no means an attack on the morality of the healthcare system, I am just saying that this is a good industry in terms of demand and supply dynamics.
Macro drivers
The number of foreign patients coming to Singapore seeking healthcare services reached 500k last year, that was the highest ever. Although we all know that the govt's target of 1 million foreign patient arrivals by 2012 will not be met but it will probably be achieved by 2015.
Another macro driver for the sector's growth will be population growth. Our population has grown by 120k per year since 2000, driven mainly by "foreign" talents. This will mean demand will only continue growing.
When I was looking across the board for attractive healthcare providers to invest in, one in particular appeared on my screen. It captured my attention because it is one that I seriously doubt I will ever be a patron of the place. *touch wood* This is none other than Thomson Medical. Personally, I am dead against having kids (the worse possible investment a human being can ever have) which I know is one of the more controversial ideas that I have. But that is not the topic of our post today.
I love the idea of others having kids because at least I know that there are people out there who are willing to take up the burden and liability which will be a great comfort for our govt. I will never forget a couple of National Day Rallies ago, where our very own beloved PM Lee gave a speech about how Singaporeans are not having enough kids and that the replacement ratio of couples in Singapore is way below international standards at 1.22 kids per couple. That is worrying. Not that I really care.
With such a low replacement ratio, it is not a surprise that Thomson Medical whose key expertise in women and children, has not been trading at the average price multiples (20-25) for healthcare companies in Singapore. Its growth prospects are truly not as rosy as the other healthcare providers considering so many Singaporeans are not looking to have kids.
Background
Thomson Medical Centre (TMC) is a leading private women and children’s hospital in Singapore. It provides a comprehensive range of facilities and services for primary, secondary and tertiary healthcare, with focus in the areas of Obstetrics and Gynaecology (O&G) and paediatric services.
The 190-bed Thomson Medical Centre along Thomson Road has been in operation since 1979 and offers quality healthcare by a team of highly experienced O&G specialists and pediatricians. It also operates Thomson Fertility Centre, which offers In-Vitro Fertilisation (IVF) programmes to aspiring parents, as well as a chain of seven Thomson Women’s Clinics island-wide. Other subsidiary companies include Thomson Pre-Natal Diagnostic Laboratory, Thomson Aesthetics Centre and Thomson International Health Services.
TMC has also made significant strides with its regional aspirations. Its hospital consultancy project, the 260-bed Hanh Phuc International Women & Children Hospital in Binh Duong Province is scheduled for completion in Q3 2009. In September 2008, the Group secured a second hospital consultancy project in Vietnam -- a proposed private women and children hospital to be sited in Hanoi.
The Group transferred its listing to the Mainboard in December 2007. In recognition of TMC’s best practices in corporate transparency, the Group enjoyed a three-time win in the Most Transparent Company Award category of the SIAS Investors’ Choice Awards from 2006-2008.
For winning the Singapore Promising Brand Award (SPBA) three years in a row, and in recognition of our brand, we were conferred both the prestigious SPBA Silver Award and the SPBA Distinctive Award in 2006.
In 2007, Thomson Medical Centre won the Singapore Prestige Brand Award and was the overall winner of the “Most Established Brand” category. These awards, jointly organized by the Association of Small & Medium Enterprises and Lianhe Zaobao, are indeed testimony to the strong brand performance of Thomson Medical Centre.
With a sterling brand name, dedicated doctors and nurses, and highly personalised service, TMC is poised to continue to be the market leader for woman and child care.
Valuations
TMC has been able to grow their revenues very consistently throughout their time as a listed company. Revenues have grown at a CAGR of 13.3% which is very impressive considering the fact that they are operating in a country with one of the lowest birth rates globally.
Gross margins have hovered at 40 odd percent over the past 5 years. That is something that I love about it. Net margins stand at the late teens. Profit after tax has also grown by more than 20% over the past 5 years. This is by no means a company that has no growth in its business. Look for further growth in its revenue and profitability as their Vietnam operations start.
The company has also indicated that they are looking for further expansion regionally. This bodes well because TMC is very established specialist in their field and their segmentation gives them a unique positioning against their competitors. This is the competitive edge that investors should look for in any company before investing.
Operating cash flow has been very consistent and also growing at the same time. Net cash position on its balance sheet, giving it a strong balance sheet that is ready for further growth opportunities.
In terms of dividends, TMC is paying out more than 50% of their earnings per year. With earnings of 2.43 cents for the first half, it is possible for TMC to generate more than 5 cents in earnings which will translate to a dividend payout of 2.5 cents or more. I fully expect the dividends to rise by 10% or more per year over the next 5 years barring any crisis or need for capital for further expansion.
At this point in time, I do think that the momentum has been strong behind the stock and I would not recommend the point of entry to be at this price. Allow for a pull back before venturing into it. It is one for the longer term and very suitable for investors looking for a combination of consistent dividends and capital growth. Do not expect it to move like a growth stock but it will be a good core stock to have in your portfolio. My target for this stock is $1.20 by mid 2011 based on 20 times 2011 earnings and $1.45 by end 2011.
Anyway, I wanted to write something on Biosensors but DBS has already issued a detailed report on it. That will be a much more speculative play. I remember an analyst told me 5 years ago that Biosensors was going to be a acquisition target and I told him it was too early to tell. However, now I feel it is a lot more likely to be an acquisition target because it has started to reap rewards from its technological edge in drug eluting stents. Keep it on your radar, there is money to be made on a trading basis.
Thats all for this week.
Best,
SVI
Subscribe to:
Posts (Atom)
Posts
